The threat of U.S. tariffs is weighing on the Bank of Canada’s outlook for the economy and future direction of interest rates, according to minutes from the central bank’s recent meeting.
A summary of the governing council’s most recent deliberations shows that tariffs and a potential trade war with the U.S. dominated discussions at the central bank.
Ultimately, the Bank of Canada elected to lower interest rates another 25-basis points on Jan. 29, taking its benchmark overnight rate down to 3%.
However, the future direction of interest rates has been clouded by the ongoing threat of U.S. import tariffs imposed on Canadian goods.
The governing council had a long discussion on the potential impact that a prolonged trade war with the U.S. could have on Canada’s economy.
The publicly released meeting minutes state: “Members also agreed that the threat of tariffs had increased uncertainty, and this would weigh on business confidence and investment intentions, as well as consumer sentiment.”
U.S. President Donald Trump continues to threaten to impose blanket 25% tariffs on Canadian imports. He most recently delayed the tariffs until March 1 of this year.
However, the ongoing tariff threat, and any retaliatory measures from Ottawa, meant the Bank of Canada wasn’t comfortable providing insights on its interest rate plans moving forward.
The rapidly unfolding developments make it “impossible to predict what would happen with U.S. trade policy,” reads the meeting summary.
The central bank council agreed that monetary policy needed to weigh the downward pressure on inflation against weakness in the economy, with upward inflation pressure from a trade war.
The Bank of Canada is scheduled to make its next decision on interest rates March 12.
