Morning Market Brief March 13, 2025

BoC cuts rates at seventh straight meeting

The BoC lowered its policy interest rate at its March meeting. The rate reduction was widely anticipated by markets, with the threat of extensive tariffs expected to hurt economic conditions in Canada. The rate cut was warranted due to uncertainty persisting among households and businesses. The BoC has aggressively reduced interest rates since last June, which helped boost growth in the third and fourth quarters of 2024.

• The BoC lowered its benchmark overnight rate by 25 basis points (bps) to 2.75%. This was the BoC’s seventh straight rate cut, totalling 225 bps. A Bloomberg survey of economists expected the reduction.
• The BoC believes trade tensions with the US are creating new challenges for the Canadian economy. The BoC surveyed households and businesses in recent weeks, finding them nervous about future economic conditions. The BoC is concerned about consumer and business confidence levels.
• Canada’s central bank believes its rate cuts have helped lift economic activity. However, the economy could come under pressure if trade tensions escalate. The BoC said that monetary policy could provide support but not offset the negative impact of trade tensions. In response, the BoC will closely monitor the path of inflation and demand ahead of future rate decisions.
• In the US, the year-over-year inflation rate fell to 2.8% in February, which was below economists’ expectations. This gives US households and businesses a little relief before prices are expected to increase in response to extensive tariffs.

The BoC commented that further interest rate cuts are not predetermined. For now, the BoC believes a bit more monetary loosening is necessary to help support consumers and businesses through a period of elevated uncertainty. A 25% tariff on aluminum and steel went into place yesterday. The BoC expects it will be a relatively bumpy road for Canada’s economy amid trade tensions.

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