Bank of Canada likely to cut rates 25 bps to cushion economy from tariffs

Promit Mukherjee

Wed, Mar 12, 2025, 3:01 AM 2 min read

By Promit Mukherjee

OTTAWA (Reuters) - The Bank of Canada volition apt chopped its benchmark complaint by a 4th constituent connected Wednesday to cushion the system against U.S. tariffs, respective economists said.

If the BoC delivers the 25-basis-point cut, it volition beryllium the bank's seventh consecutive reduction, bringing down the argumentation complaint to 2.75%, a monolithic 225-bps driblet from 9 months ago.

"The slope politician volition err connected the broadside of supporting the system during what could beryllium a downtrend from the tariffs," said Tony Stillo, manager astatine forecasting and investigation radical Oxford Economics.

U.S. President Donald Trump's abrupt shifts connected the timing, products progressive and grade of tariffs connected imports from Canada person already created uncertainty among businesses and households, hurting concern and spending.

The imaginable interaction of retaliation from Canada has heightened the unpredictability further.

BoC Governor Tiff Macklem is "in a bind," Stillo said astir Canada's monetary argumentation path.

Cutting erstwhile successful March and past holding rates to fto the tariffs' interaction play retired would beryllium a pragmatic approach, helium added.

Currency markets are seeing an astir 95% accidental of a 25-bps chopped connected Wednesday, and 20 economists retired of 23 polled by Reuters expect the quarter-point reduction.

The slope volition denote the rates astatine 9:45 a.m. EDT (1345 GMT) connected Wednesday.

The BoC said successful January that tariff threats were clouding its forecasts. It said that if tariffs persist, it would shave disconnected each the maturation expected this twelvemonth and next.

Canada's system had recovered its footing aft respective quarters of sluggishness. Fourth-quarter GDP surpassed forecasts to timepiece annualized maturation of 2.6%, ostentation continued to beryllium beneath 2% and unemployment fell.

"A beardown 4th fourth gives america a small spot of an security argumentation against these impending tariffs," said Andrew DiCapua, main economist astatine the Canadian Chamber of Commerce.

He cautioned, however, it would not offset a important stroke from tariffs and the slope would person to bring the involvement complaint adjacent to neutral soon.

A neutral complaint is erstwhile the involvement complaint is conscionable capable not to stimulate oregon restrict growth, a level the BoC considers astir betwixt 2.25% and 3.25%.

(Reporting by Promit Mukherjee; Editing by Rod Nickel)