Uncertainty about both the rapidly changing U.S. trade policy and the impact it’s having on the Canadian economy dominated discussion by the Bank of Canada governing council in the lead-up to its interest rate hold earlier this month.
The decision to keep the benchmark rate at 2.75 percent came on the heels of U.S. President Donald Trump’s April 3 tariffs, which targeted a slew of countries and roiled markets.
The governing council led by governor Tiff Macklem ultimately opted to keep its powder dry, with some members arguing a rate cut could end up being premature if tariffs and counter-tariffs led to a rapid rise in inflation.
Those arguing for a lower rate highlighted the need for timely action given interest rate cuts take time to work through the economy and noted the stock market turmoil increased concerns over a deeper U.S. recession.
The unpredictable trade policy shift from Washington led the council to hold an “extensive discussion” on risks to the economy and inflation.
It also came up with a framework for assessing the inflationary effects of tariffs, including export demand and how quickly cost increases are passed along to consumers.
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