The Bank of Canada (BoC) is likely to cut its key benchmark rate by 25 basis points this week and is expected to provide analysis on the potential impact of U.S. tariffs, according to economists and analysts.
This is the first time the central bank will announce its interest rate decision and share economic projections since the change of administration in the United States, Canada’s largest trading partner.
President Donald Trump, who took office last week, has threatened to impose a range of tariffs on Canadian imports since winning the U.S. election in November. In his latest remarks, he threatened a 25% tariff on Canada starting Feb. 1.
His remarks have caused confusion for businesses and investors and weighed on economists’ forecasts, making the BoC’s monetary policy decision and this week’s forecast crucial.
“With tariffs overshadowing the economic outlook, we expect the Governing Council to opt for a 25bp (basis point) cut in policy rates,” Thomas Ryan, an economist at Capital Economics, wrote in a note.
Currency markets are pricing in an 83% probability of a rate cut on Wednesday.
If the BoC cuts rates as expected, the benchmark rate will fall to 3.0%. This would be the sixth consecutive rate cut since June, bringing the total number of cuts to 200 basis points in seven months.
In a Reuters poll of economists, 80%, or 25 of 31 respondents, said they expected a quarter-point rate cut on Wednesday, down from a half-point cut in December.
However, most said it was difficult to predict the rate after the next meeting because of the threat of tariffs that looms over the Canadian economy.
