Bank of Canada cuts interest rate by quarter-point to 2.75% amid ‘uncertainty’ around Trump tariffs

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12 p.m.

What’s next?

– Mark Rendell

• The Bank of Canada’s next rate decision will be announced April 16. That will be accompanied by a new quarterly forecast for economic growth and inflation.
• The U.S. Federal Reserve’s next rate announcement is Wednesday, March 19. The Fed is expected to hold rates steady, following comments by Chair Jerome Powell suggesting the central bank will wait for more clarity about the direction of the U.S. economy before adjusting interest rates.
• The next tranche of U.S. tariffs are expected to be announced in early April. U.S. President Donald Trump has said “reciprocal” tariffs against all U.S. trading partners and additional tariffs on Canadian dairy and lumber will come into force April 2. The month-long tariff reprieve for USMCA-compliant goods is also expected to end that day.
• Statistics Canada will publish February inflation data next Tuesday, March 18. January GDP numbers will be out on March 28 while the March jobs numbers will be out April 4.
• Canada could be in a federal election in the coming weeks, after Mark Carney’s replacement of Justin Trudeau as Liberal Party Leader. Parliament is scheduled to return March 24, but reporting by The Globe and Mail suggests Mr. Carney may call an election as early as next week.

11:50 a.m.

Opinion: Bank of Canada made the right call to cut rates. But where to from here?

– Jeremy Kronick and Steve Ambler

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The Bank of Canada cut its policy interest rate to 2.75 per cent on Wednesday, its seventh cut in as many announcements. Notwithstanding recent data showing a strong economy at the turn of the year, the needless trade war, the flip-flopping U.S. policy, and the uncertainty this has caused sealed the deal.

Markets, businesses, and consumers all crave certainty. We currently have none. A widely-used economic policy uncertainty index sits today at almost twice its level in the depths of the COVID-19 pandemic and more than three times its level during the 2008 financial crisis. Unprecedented, to say the least.

Such extreme uncertainty makes incoming data hard to read and forecasting next to impossible. The Bank of Canada had to make a decision, however. It decided to cut, and we agree.

Read more from the latest column on Bank of Canada.

11:03 a.m.

Senior deputy governor Carolyn Rogers on Canada’s retaliatory tariffs

– Matt Lundy

“Retaliatory tariffs are going to add to the uncertainty. They’re going to add to the potential price increases that Canadians and Canadian businesses face. There’s really no question about that, but these are really tough decisions. They’re decisions that don’t belong to the central bank. They’re trade policy decisions, and they’re made by the government, and I’m sure they’re not easy decisions to make. But governments need all the tools they can get in a trade war. Retaliatory tariffs are really designed to try and get us back to a mutually beneficial trading relationship.”

11 a.m.

Macklem on Mark Carney becoming Liberal Leader

– Matt Lundy

“I don’t have much to say. Mark Carney and I worked together here at the Bank of Canada. He was the governor. I was the senior deputy governor. Mark has now entered politics. The Bank of Canada operates independently of the political process. That is really important. And what that means is it comes with a responsibility. The Bank of Canada needs to stay clear of any comments that could be seen as political in nature. So I have no further comments. I’m not going to be commenting on political leaders or political developments.”

10:54 a.m.

Macklem on inflation: ‘The reality is, some prices are going to go up’

– Matt Lundy

“The other thing we’re hearing from businesses is that the uncertainty itself is adding costs. Businesses are looking for new suppliers. They’re holding extra inventory. They’re looking for new markets for their goods. That all entails new costs. So there are a number of new costs that businesses are facing, and ultimately those will get passed through to the prices that Canadians face. There’s quite a bit of uncertainty about how quickly that happens. Does it get fully passed through? How quickly does it get passed through? … The reality is, some prices are going to go up. We can’t change that. We don’t want to see that first round of price increases have knock-on effects, causing other prices to go up, becoming generalized and ongoing inflation. That’s what we can’t let happen.”

10:50 a.m.

Does the Bank of Canada even matter to your personal finances any more?

– Erica Alini

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Until not long ago, another cut to the Bank of Canada’s trendsetting interest rates would have mattered a lot for Canadians’ wallets. Dropping borrowing costs at this time of year, for example, would prompt more would-be buyers to start house shopping and more homeowners to put up “for sale” signs ahead of a lively spring housing market.

But that has all slipped into the background as U.S. President Donald Trump’s trade war rocks Canada’s economy. What the Bank of Canada can do to soften the financial pain of tariffs and countertariffs is limited. Cheaper credit helps but likely won’t spur nervous businesses to invest.

And the central bank won’t be able to cut rates as aggressively as it did in the early days of the pandemic or during the financial crisis of 2007-2008 because of the risk that tariffs will fuel inflation.

Get ready for a new era in which monetary policy also makes less of a difference to most people’s personal finances. Sure, a Bank of Canada rate cut is still good news for anyone paying off a variable-rate mortgage or a line of credit. But it won’t help as much as it used to in taming rising grocery prices. And it’s certainly cold comfort for people worried about losing their jobs.

10:45 a.m.

BoC rate cut will make things easier for homeowners, but not enough to motivate prospective buyers

– Rachelle Younglai

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Today’s interest rate cut will make it easier for homeowners to renew their mortgages but it’s not expected to motivate would-be buyers to go ahead with a purchase.

Mortgages are cheaper than a year ago, but they are still higher than they were during the pandemic.

A five-year fixed-rate mortgage averaged 4.02 per cent so far in March, according to data from Mortgagelogic.news. That is lower than the average rate of 4.82 per cent a year ago but much higher than in 2020 and 2021, when mortgage rates were below 2 per cent.

The slightly lower rate may help slow the pace of mortgage delinquencies. Recent data show that delinquencies, when a homeowner has not made a payment in at least 90 days, are on the rise in Ontario.

This year, more than a million homeowners with fixed-rate mortgages are due to renew their mortgages at much higher rates.

For prospective homebuyers, prices are still well out of reach, and a 25-basis-point cut to the central bank’s benchmark rate will not make that much of a difference. Mortgage rates are likely never returning to sub 2-per-cent levels.

“There was a promise there that Canada cuts interest rates and mortgage rates will go down. But fixed mortgages haven’t gone down all that much,” said Carl Gomez, chief economist with commercial real estate firm CoStar Group. “The return to zero, which is what a lot of sales were built off of, isn’t happening.”

10:35 a.m.

Economists react to today’s BoC rate cut

– Darcy Keith, with files from Reuters

Here’s how economists are reacting so far to today’s rate decision:

Avery Shenfeld, chief economist of CIBC World Markets

“It’s clear from the statement that improving economic fundamentals in the last two quarters would have otherwise seen the central bank take a wait-and-see approach on further easing. But the bank’s readings on business and household confidence, and its expectations for slower growth in Q2 and beyond, made the case for a rate cut. … Our judgment is that the downward pressure on prices from increased slack and weaker household spending power would leave growth risks, rather than inflation, as the dominant story for monetary policy, allowing the bank to deliver two more quarter-point cuts by June. That could be the trough if tariffs come down again, as we still hope will be the case.”

Taylor Schleich, Warren Lovely & Ethan Currie, economists with National Bank Financial

“While the communique doesn’t commit to any particular rate path, there’s clearly a focus on downside risks as ‘pervasive uncertainty’ could derail the strong GDP and labour market recovery that had been playing out. However, this cautious assessment was perhaps more than offset by a more hawkish tone on the inflationary impacts of the trade war. The bank cites rising inflation expectations and business plans to pass on tariff costs. That implies the bank will have to ‘proceed carefully’ on the rate path as ‘monetary policy cannot offset the impacts of a trade war.’ Prior to the decision, our baseline expectation for the BoC rate path was for successive 25-basis-point cuts, bringing the overnight target to 2 per cent by the summer. However, the bank’s view on inflation suggests the bar to rapid rate relief is somewhat higher. Nonetheless, we still feel that the BoC is likely to err on the side of accommodation in this uncertainty and we would assess that the negative growth impacts outweigh potential upside inflation risks. We’d therefore brace for another cut in April, although incoming economic data has the scope to change that (if inflation surprises higher and GDP/growth holds up okay).”

James Orlando, director and senior economist, TD Economics

“While recent strength in economic data would argue that the BoC could have elected to pause rate cuts, past outperformance won’t matter much with the narrative now fully altered to incorporate a trade war. Our updated forecast will reflect a shallow recession under the assumption that Canadian exporters will face an effective tariff rate of 12.5 per cent for at least the next six months. That’s a massive overhaul from the past when it sat below 2 per cent. As long as the pressure on tariffs remains in place, the BoC should keep its dovish bias. We have the overnight rate getting to 2.25 per cent by June, but see limitations in going further due to the delicate balance in managing inflation expectations.”

Derek Holt, vice-president of Capital Markets Economics, Scotiabank

“I think they may be signalling they’re done. The final paragraph was quite hawkish. They’re saying in so many words that 2 per cent (inflation) is their job and they’re more worried about upside than downside risks to that target coming from the trade tensions with the United States.”

10:30 a.m.

Key quotes from Macklem’s opening statement

– Mark Rendell

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On the state of the economy:

“The Canadian economy ended 2024 in good shape. Inflation has been close to the 2 per cent target since last summer. Substantial cuts to our policy rate through the second half of last year boosted household spending and economic growth. However, in recent months, the pervasive uncertainty created by continuously changing US tariff threats has shaken business and consumer confidence. This is restraining household spending intentions and businesses’ plans to hire and invest.”

How the BoC is thinking about future rate cuts:

“Looking ahead, the trade conflict with the United States can be expected to weigh on economic activity, while also increasing prices and inflation. Governing Council will proceed carefully with any further changes to our policy rate given the need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.”

What BoC surveys say about consumer and business sentiment:

“Canadians are more worried about their job security and financial health as a result of the trade tensions, and they intend to spend more cautiously. Job security concerns increased particularly among workers in export-oriented industries, including manufacturing, mining, and oil and gas.

Businesses have lowered their sales outlooks, notably in manufacturing and in sectors that depend on discretionary spending by households. Credit has become more difficult to access for some businesses, and with a weaker Canadian dollar, the cost of imported machinery and equipment has risen. As a result of all these trade-related factors, many businesses have scaled back their hiring and investment plans.”

What this means for economic activity:

“The recent shift in consumer and business intentions is expected to translate into a marked slowing in domestic demand in the first quarter of this year. At the same time, merchandise trade data suggest businesses on both sides of the Canadian border have stocked up on imports in advance of tariffs. As a result, Canadian exports and imports are both expected to be stronger in the first quarter. But the impact on exports looks to be bigger, which should provide some offset to weaker domestic demand in the quarter.

Of course, this pull-forward in exports likely means weakness ahead. If household and business spending intentions remain restrained, the combination of weaker exports and soft domestic demand would weigh further on economic activity in the second quarter.”

The limits of monetary policy in responding to a trade war:

“Monetary policy cannot offset the impacts of a trade war. What it can and must do is ensure that higher prices do not lead to ongoing inflation. The focus of Governing Council will be on assessing the timing and strength of both the downward pressure on inflation from a weaker economy and the upward pressure from higher costs.”

10:25 a.m.

Broad takeaways from BoC’s surveys on consumer and business sentiment

– Matt Lundy

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Even before the trade war started in earnest, it was already weighing heavily on households and businesses.

Canadians are more worried about job security and are taking steps to bulk up their precautionary savings, while companies are scaling back their hiring and investment plans as they lower their sales outlooks.

Those are some of the broad takeaways from the Bank of Canada, which published preliminary results from its quarterly surveys of consumers and businesses on Wednesday, alongside its rate decision.

It’s perhaps unsurprising that the U.S.-driven trade war is rattling confidence in Canada. What’s notable is that even the threat of tariffs is having tangible effects on the economy. The surveys were conducted from Jan. 29 to Feb. 28, coinciding with the threat – and then a 30-day pause – of 25-per-cent tariffs on most Canadian goods.

If anything, Canadians may be feeling worse about the economic climate today. Since the survey period, U.S. President Donald Trump has imposed broad 25-per-cent tariffs on Canada, only to water them down shortly afterward. And on Wednesday, steel and aluminum tariffs of 25 per cent took effect.

The word “uncertainty” appeared seven times in Bank of Canada Governor Tiff Macklem’s opening statement Wednesday. “Depending on the extent and duration of new U.S. tariffs, the economic impact could be severe,” he said. “The uncertainty alone is already causing harm.”

For policymakers, the trade chaos threatens to derail what was shaping up to be a solid economic rebound. As the central bank has cut interest rates – the policy rate is now 2.75 per cent, down from 5 per cent at the recent peak – economic activity and hiring have picked up.

But the trade war could push Canada into a recession, and the Bank of Canada is limited in how its key tool – interest rates – can blunt the damage.

10:20 a.m.

Opinion: Risk is all around us in the trade war – but we are very far from panic levels

– Rob Carrick

In the pre-crisis world before the pandemic, the Bank of Canada’s overnight rate was a steady 1.75 per cent. Then came a series of emergency rate cuts that took the benchmark rate to 0.25 per cent.

On Wednesday, the central bank lowered the overnight rate by a quarter of a point to 2.75 per cent. The comparison is presented as context for understanding what kind of shape the economy is in as we endure the opening phase of a trade war with the United States.

Risk is all around us in the trade war – jobs are vulnerable, and so are stocks and the Canadian dollar. But if you use the Bank of Canada’s overnight rate as a gauge of economic stress, we are very far from panic levels.

Its recent peak was 5 per cent. Since then, there have been seven cuts of a quarter or half a point. Prior to the trade war, economists had speculated about whether the economy was strong enough for the central bank to pause rate cuts to assess their cumulative effect.

The prepandemic economy chugged along in a modest, uneventful way that produced that steady 1.75-per-cent overnight rate all the way from the summer of 2018 through to the eruption of the pandemic in March, 2020.

Today we have an overnight rate that reflects both the legacy of high inflation and the menace of a trade war. We are a long way from the five-alarm emergency lows of the pandemic, which means things could be a lot worse than they are right now in the Canadian economy.

Read more on what the BoC rate cut means for your finances.

10:15 a.m.

Uncertainty over tariffs prompts homebuyers to take ‘wait-and-see approach’ despite BoC rate cuts

– Rachelle Younglai

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The global trade war has cast a pall over home buying, and today’s Bank of Canada interest rate cut is not expected to fuel Canada’s housing market.

Prospective buyers started putting their plans on hold in early February when the Trump administration announced plans to slap 25-per-cent tariffs on most Canadian imports.

Since then, the trade war has escalated, with U.S. President Donald Trump repeatedly announcing and postponing plans for steep tariffs.

“The pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence,” Bank of Canada Governor Tiff Macklem said in prepared remarks accompanying the bank’s decision to lower its key rate to 2.75 per cent from 3 per cent.

Realtors agreed.

“There is a lot of uncertainty. That has prompted households to take a wait-and-see approach,” said Samantha Villiard, a regional vice-president with Re/Max Canada real estate brokerage.

This was supposed to be the year buyers came back to the market after two years of waiting for mortgage rates to fall. But although the bank has now cut rates seven times since June and mortgage rates are cheaper, the trade war has injected uncertainty into the market.

Kingsley Ma, another regional vice-president with Re/Max, said the motivation to buy will not increase significantly because of another interest rate cut.

“Any time there is uncertainty, [homeowners and buyers] would rather put things on hold until things settle,” he said.

Last month’s resales in Toronto, Calgary and Vancouver were lower than a year ago.

10:10 a.m.

How markets are reacting to today’s BoC announcement

– Darcy Keith

This Bank of Canada rate cut was almost completely priced into markets ahead of time, and the forward-looking, cautionary commentary today by the central bank didn’t offer much surprise. The result is markets barely budged as the decision was made public.

The Canadian dollar is hovering near 69.45 cents U.S. That’s up from about 69 cents earlier this morning, prior to the U.S. releasing its latest CPI numbers. That report had a greater impact on the loonie, as it came in softer than expected, triggering broad declines in the U.S. dollar. Headline inflation in February was at 2.8 per cent year-over-year, while core inflation was at 3.1 per cent. Both were 0.1 of a percentage point below the Wall Street consensus. Stock futures extended their gains after the CPI report, but equities in both Canada and the U.S. are struggling to stay in the green as regular trading commences.

Canadian bond yields are also staying well within their daily range after the BoC decision, with the two-year yield nearly unchanged for the day.

Money markets are now pricing in roughly even odds that there will be another rate cut at the next policy decision on April 16. By the end of this year, they are nearly pricing in another 50 basis points of easing.

The focus now turns to what will come out of the BoC’s news conference.

9:45 a.m.

BoC cuts rate by quarter-point to 2.75%

– Mark Rendell

The Bank of Canada cut its key interest rate by a quarter percentage point Wednesday and warned of an impending economic downturn as the trade war with the United States rattles consumer and business confidence.

The widely expected move lowers the benchmark policy rate to 2.75 per cent. This is the bank’s seventh consecutive cut since it began easing monetary policy last summer as pandemic-era inflation faded.

“We ended 2024 on a solid economic footing. But we’re facing a new crisis,” Governor Tiff Macklem said in a news conference opening statement, according to the prepared text. “Depending on the extent and duration of new U.S. tariffs, the economic impact could be severe. The uncertainty alone is already causing harm.”

Mr. Macklem said the bank lowered interest rates to help cushion the impact of trade volatility.

However, he said the bank would “proceed carefully with any further changes to our policy rate” given the challenges of balancing the downside risk to economic activity with the upside risk to inflation caused by tariffs.

Read more about today’s Bank of Canada interest rate decision.

9:30 a.m.

Canadian dollar strengthens, benchmark yield climbs

– Reuters

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The Canadian dollar strengthened against the greenback on Wednesday, and the yield on benchmark government debt climbed.

The loonie was trading 0.3 per cent higher at C$1.4395 to the greenback, or 69.47 U.S. cents, after trading in a range of 1.4371 to 1.4484.

Canadian government 10-year bond yields rose 3 basis points to 3.038 per cent. The yield on similar U.S. government benchmark debt rose to 4.3316 per cent. U.S. April crude futures rose 79 cents to $67.04 a barrel on Wednesday.

Read more about the loonie’s very bad, no good past few months.

9:05 a.m.

Europe retaliates against Trump’s tariffs on steel and aluminum

– Eric Reguly

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The European Union has retaliated against U.S. President Donald Trump’s new 25-per-cent tariffs on steel and aluminum with countertariffs on US$28-billion worth of U.S. goods that would start in April.

“The European Union must act to protect consumers and business,” European Commission President Ursula von der Leyen said in a statement Wednesday morning. “The countermeasures we take today are strong but proportionate.”

The new EU tariffs will target American-made steel and aluminum products, industrial goods, home appliances, textiles and agricultural goods such as poultry and beef. The EU will also reinstate measures that were introduced in Mr. Trump’s first term. They will include tariffs on bourbon whisky, cosmetics, Harley-Davidson motorcycles and jeans.

Read more about Europe’s countertariffs on U.S. tariffs.

8:50 a.m.

What’s happening with tariffs?

– Mark Rendell

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Right now, every economic indicator is taking a backseat to Donald Trump’s dizzying pronouncements on tariffs, which have the potential to do major damage to Canadian businesses and workers. The Bank of Canada, like the rest of us, is watching every social media post and off-hand comment by the President for signals about where the economy is headed.

Here are the main tariff threats Canada is facing:

1. In an unhappy coincidence, the BoC’s interest rate decision falls on the same day 25 per cent U.S. steel and aluminum tariffs are expected to come into force.
2. Last week, the U.S. imposed 25-per-cent across-the-board tariffs on imports from Canada and Mexico, plus 10-per-cent tariffs on energy and critical minerals. Two days later, Mr. Trump lifted the tariffs until April 2 for goods that comply with the United States-Mexico-Canada Agreement. That exemption should cover many Canadian exports, although products that are unable to comply with USMCA rules of origin will still get hit.
3. The President has threatened tariffs on a range of Canadian industries, including softwood lumber, dairy and automobiles. He has not spelled out what these tariffs would be but said they could come into force in early April.
4. Mr. Trump has promised “reciprocal” tariffs on all trading partners starting April 2, matching tariffs other countries put on U.S. goods and policies that supposedly disadvantage U.S. companies. In the case of Canada, Mr. Trump and his lieutenants have pointed to the country’s supply-managed dairy sector and its digital services tax as potential targets.

8:35 a.m.

U.S. tariffs on steel and aluminum take effect

– Tim Kiladze, Nathan VanderKlippe and Jeff Gray

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The United States has imposed 25-per-cent tariffs on imports of aluminum and steel, as President Donald Trump erects a stiff new economic barrier to foreign-produced goods, saying it will stimulate domestic output.

The tariffs apply to all countries, including Canada, Mexico and Australia, undoing previous exemptions granted to close U.S. trading partners. They were first announced last month and went into effect early Wednesday morning.

The White House did not double the tariffs on Canada to 50 per cent, as Mr. Trump had briefly pledged to do on Tuesday morning in a chaotic day of threats and last-minute deal-making. The president changed course after Ontario Premier Doug Ford suspended a 25-per-cent export surcharge on electricity exports to the U.S., in a temporary compromise brokered with U.S. Commerce Secretary Howard Lutnick.

It marks the second time in a decade that Mr. Trump has slapped punishing levies on Canadian steel and aluminum. Stock markets have retreated on those plans, with share price losses on Monday and Tuesday that accompanied rising fears voiced by economists that a recession may loom.

Ottawa intends to respond with dollar-for-dollar retaliation on U.S. steel and aluminum products as well as other goods, according to a federal government source. Finance Minister Dominic LeBlanc and Foreign Affairs Minister Mélanie Joly plan to hold a news conference Wednesday morning to announce Ottawa’s countermeasures.

Read more about Canada’s plan to announce countermeasures on U.S. tariffs.

8:15 a.m.

What does Bay Street expect?

– Mark Rendell

After the last rate announcement, in January, financial markets were expecting the Bank of Canada to hit pause at its next rate announcement in March. But after six weeks of mayhem caused by Donald Trump’s vacillating trade policy, traders are convinced the central bank will cut again.

Interest rate swap markets, which capture expectations about monetary policy, put the odds of a quarter-point rate cut at around 95 per cent. That’s up from 80 per cent Friday. Markets became more confident in a cut after stock markets sold off Monday and Mr. Trump doubled down on his threats against Canada’s steel and aluminum industries Tuesday.

Financial markets are pricing in two or three more quarter-point cuts this year after Wednesday, which would bring the policy rate down to 2.25 per cent or 2 per cent.

Twenty out of 23 economists polled by Reuters last week said they’re looking for a quarter-point cut today, with the three outliers expecting the bank to hold steady.

7 a.m.

BoC expected to cut rate to 2.75 per cent amid trade war

– Mark Rendell

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If it wasn’t for a trade war, the Bank of Canada might have stopped easing monetary policy by now. With U.S. President Donald Trump trampling on North American trade, however, Canada’s central bank is expected to deliver its seventh consecutive cut this morning.

Analysts and traders are looking for a quarter-point move, which would lower the policy rate to 2.75 per cent from 3 per cent.

A rate decision is never a sure thing, and Governor Tiff Macklem and his team may decide to hit pause and wait to see how Mr. Trump’s on-again, off-again tariff policy plays out.

But tariff uncertainty is already weighing on Canadian businesses, and the reimposition of sweeping levies – which Mr. Trump imposed then partially lifted last week – would likely push the economy into a recession. Mr. Trump also plans to impose 25 per cent tariffs on steel and aluminum from Canada starting Wednesday.

Trade wars are tricky for central banks to navigate. In a normal economic downturn, central banks can cut interest rates without worrying too much about inflation, as declining consumer demand weighs on prices. But a trade war is a stagflation shock: Tariffs and countertariffs hurt the economy and push up unemployment, but they also increase prices.

Analysts will be watching how Mr. Macklem talks about this trade-off in the news conference at 10:30 am ET following the rate announcement. If he focuses on the inflationary impact of tariffs, it would suggest fewer rate cuts are on the horizon. If he focuses on the likelihood of a recession, markets will start pricing in more rate cuts.

The bank is not publishing a new forecast today.

Read more about today’s expected Bank of Canada rate cut.