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Investing.com -- The Bank of Canada lowered its key policy rate by 25 basis points to 2.75% on March 12, marking the seventh consecutive reduction. The move comes as the bank seeks to buffer Canadians from the looming economic uncertainty triggered by U.S. tariffs, according to minutes from the bank’s deliberations released on Wednesday.
The bank’s decision to cut rates was made despite observing less evidence of downward pressure on inflation. The minutes revealed that the governing council members were generally assigning less weight to downside risks to inflation, noting strong economic growth at the start of 2025.
The council members agreed that if it were not for the threats of tariffs and the heightened uncertainty, the decision would likely have been to maintain the policy interest rate at 3%. This sentiment was echoed by Macklem on March 12, who stated that some council members felt that rates could remain at 3%.
The Canadian economy is expected to weaken as tariffs progressively take effect, making it challenging to plot a course for monetary policy. However, the rate-setting council agreed that it was too early to see the impact of tariffs on economic activity. They cautioned that the shift in sentiment could result in a significant slowdown in domestic demand in the future.
Following the rate decision, data showed that inflation, which had remained around the bank’s 2% target for five consecutive months, rose to 2.6% last month. The council noted the extent and speed of the pass-through to consumer prices was uncertain and will require careful tracking.
Given the overall uncertainty, the council concluded that it would not be appropriate to provide guidance on the future path for the policy interest.
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