This move comes as the central bank grapples with the economic uncertainty caused by escalating trade tensions with the United States. The policy rate now stands at 2.75 per cent, its lowest level since September 2022. While Canada’s economy showed resilience at the beginning of 2025, the ongoing trade dispute is casting a shadow over future growth.
The rate cut was widely anticipated by analysts who have been closely monitoring the impact of U.S. tariff policies. The central bank noted that shifting tariff policies are generating widespread uncertainty and discouraging investment and consumer spending. According to data collected between late January and February, businesses are already expecting higher costs. They also anticipate reduced sales and scaled-back investments due to the ongoing trade conflict.
Consumer sentiment has also turned negative, with many Canadians bracing for rising prices and weaker economic conditions. Despite these concerns, the Bank of Canada has signalled it will approach future interest rate decisions with caution. While inflation remains a key consideration, policymakers must also account for weakening demand. The unpredictability of U.S. trade actions adds to the challenge, making it difficult to predict the long-term economic effects of current policies.
Although monetary policy adjustments can help mitigate some economic challenges, the central bank has acknowledged it cannot fully counteract the effects of a trade war. In its official statement, the Bank of Canada reaffirmed its commitment to monitoring inflation expectations and the economic impact of tariffs.
Financial analysts have differing opinions on how interest rates will evolve in the coming months. Some economists predict that additional rate cuts could be necessary if trade tensions persist. Desjardins’ head of macro strategy, Royce Mendes, noted that further reductions in April would depend on inflation expectations. If inflation remains stable despite slower growth, the central bank may take a more cautious approach.
Meanwhile, BMO’s chief economist, Douglas Porter, expects the Bank of Canada to continue cutting rates at upcoming meetings. He added the bank might potentially bring the benchmark rate down to 2 per cent. However, he emphasised that much depends on how the trade dispute unfolds. Similarly, CIBC economist Avery Shenfeld described the rate cut as a temporary measure to address economic instability.
For now, financial markets remain uncertain about the central bank’s next move. Currency market data suggests a 45 per cent probability of another rate cut in April. As the trade situation evolves, policymakers will need to strike a delicate balance between controlling inflation and supporting economic growth.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients.
Find out why.