Bank Of Canada Cuts Rates, Tariff War Could Be Very Damaging

• The Bank of Canada (BoC) on Wednesday trimmed its key policy rate by 25 basis points to 3%, cut growth forecasts and warned Canadians that a tariff war triggered by the United States could cause major economic damage.
• Wednesday's cut marked the sixth time in a row that the bank has reduced borrowing costs. However, while inflation has consistently stayed around the mid-point of the bank's 1-3% target range, economic growth is still sluggish.
• Canada sends 75% of all goods and services exports to the United States, and U.S. President Donald Trump is promising to impose a 25% tariff on all imports from Canada on Saturday. The bank now faces the challenge that U.S. tariffs might both drive up inflation - in theory, prompting the need for higher rates - and also cut growth, which could on paper mean more stimulus in the form of lower rates.
• If Canada and other nations slapped a retaliatory 25% tariff on the United States, this could cut Canadian growth by 2.5 percentage points in the first year and another 1.5 percentage points in the second year, the bank said, noting that this was not a forecast but a hypothetical scenario.
• "A long-lasting and broad-based trade conflict would badly hurt economic activity in Canada," Governor Tiff Macklem said in opening remarks to a press conference. The prospect of such a war is clouding the economic outlook.
• The BoC, which has been among the most aggressive top central banks in cutting rates, trimmed the country's economic growth outlook to 1.8% in 2025 from the 2.1% predicted in October. The economy is expected to grow by 1.8% in 2026, down from growth of 2.3%.
• Money markets see an almost 50% chance of another 25-basis-point cut at the BoC's next monetary policy decision announcement on Mar. 12.

(Source: Reuters)