BoC cuts rates amid tariff balancing act: CPA Canada

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January 29, 2025 4:08 PM EST

TORONTO, Jan. 29, 2025 (GLOBE NEWSWIRE) -- The Bank of Canada’s latest interest rate cut underscores its commitment to stimulating growth amid ongoing economic challenges – even as the looming tariff threat from south of the border complicates the outlook.

“The central bank’s decision to cut rates reflects its focus on the current state of the Canadian economy, ahead of potential external risks,” says CPA Canada’s chief economist, David-Alexandre Brassard.

“The impact of potential tariffs could simultaneously dampen growth and increase inflation. It’s a delicate balancing act.”

Despite past interest rate cuts successfully boosting demand, the Canadian economy continues to show signs of excess supply, evidenced by a weak labour market and slower-than-expected wage growth.

While inflation remains within the central bank’s target range, the decision to further lower rates aims to bolster economic activity and better position Canada for potential risks on the horizon.

In its Wednesday address, the Bank of Canada mentioned that currency risks posed by the interest rate spread between Canada and the U.S would gain importance in upcoming decisions. It also released new scenarios examining the potential impact of widespread tariffs from the U.S, noting that such tariffs could lead to a significant slowdown in the Canadian economy with GDP potentially dropping by more than two percentage points and inflation rising by one percentage point.

To arrange an interview with our chief economist, please contact [email protected].


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Source: Chartered Professional Accountants of Canada

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