Seventh Canadian Central Bank Rate Cut Since June 2024 – Currency Thoughts

Seventh Canadian Central Bank Rate Cut Since June 2024

March 12, 2025

At 2.75%, the Bank of Canada‘s policy interest rate will be 225 basis points below its former cyclical peak of 5.0% from July 2023 to June 2024. That cumulative decline was more than double the one percentage point reduction of the federal funds rate in the United States and represents Canada’s lowest rate level since September 2022. Canadian consumer price inflation crested at 8.1% in June 2022 and fell to as low as 1.6% this past September before rising to 1.9% in January. Due to the expiration of a temporary tax cut, monetary officials expect inflation to climb above the 2% target to around 2.5% by the present month of March. From there, the dynamic of the Canadian economy and Bank of Canada policy gets very complicated and highly dependent on the whims of U.S. President Trump’s flip-flopping tariff policy.

While economic growth has come in stronger than expected, the pervasive uncertainty created by continuously changing US tariff threats is restraining consumers’ spending intentions and businesses’ plans to hire and invest. 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. Governing Council will be carefully assessing the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs. The Council will also be closely monitoring inflation expectations.

In that final regard, today’s statement observes that “short-term inflation expectations have risen in light of fears about the impact of tariffs on prices” and notes that “core inflation remain above 2%, mainly because of the persistence of shelter price inflation.” Today’s rate had been telegraphed as very likely by monetary officials and therefore did not catch markets by surprise, the the intensifying trade conflict with the United States appears likely to cause a pause in rate normalization for now.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Bank of Canada

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