The Bank of Canada is widely expected to lower interest rates another 25-basis points at the conclusion of its latest policy meeting on March 12.
The potential rate cut comes as Canada enters a trade war with the neighboring U.S., casting a shadow over the outlook for the domestic economy.
However, inflation in Canada remains muted at an annualized rate of 1.9%, giving the central bank some leeway to further reduce interest rates.
The Bank of Canada targets inflation at an annualized rate of 2%.
Since June 2024, Canada’s central bank has lowered interest rates a total of six times, taking its trendsetting overnight rate down to 3% from 5% at the start of last summer.
The interest rate cuts boosted the Canadian economy leading into the end of last year, with consumer spending rising sharply to close out 2024.
However, U.S. tariffs are now clouding the economic outlook.
Most economists agree that there will be consequences for the Canadian economy in a prolonged trade war, including the possibility of a recession.
Financial markets are pricing in greater than 50% odds that the Bank of Canada will lower interest rates 25-basis points at its March 12 meeting before holding rates steady at its next policy meeting scheduled for April 16.
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