Bank of Canada to cut rates on Jan 29, wary of impact of US tariffs: Reuters poll
In Mumal Rathore
BENGALURU (Reuters) – The Bank of Canada will cut interest rates to 3.00% on Jan. 25. According to a Reuters poll of economists, however, many remained uncertain about the outlook for U.S. tariffs and potential threats. A possible Canadian response.
The country’s central bank is one of the most powerful in the world when it comes to reducing rates. It has been reduced by a cumulative 1.75 percentage points since June 2024 and is very close to the neutral rate that would not constrain or stimulate the economy.
But when US President-elect Donald Trump returned to the White House on Monday, his threat to slap tariffs of up to 25% on Canadian imports loomed over the economy, despite better-than-expected data on inflation and manufacturing jobs. .
In a Reuters poll conducted from January 10 to 16, several economists said they were yet to weigh in on the impact of potential tariffs in their latest forecasts.
More clarity could come after Trump takes office next week and Canada announces its response, but most admit it’s difficult to predict prices beyond the upcoming meeting.
“If Canada gets hit with big tariffs and we don’t hit back, then the inflationary consequences are going to be much easier with the BoC,” said Derek Holt, head of capital markets economics at Scotiabank.
“If we accept the retaliation, it is possible to toe or walk the line on policy. Our view at this point is very uncertain and we may learn a lot about the risks when Trump takes office next week.”
An 80% majority of economists, 25 of 31, expect a quarter-point rate cut on January 29, down from December’s half-percentage-point move. The others paused and waited.
According to polling average forecasts, another 25 bps cut will come in March, followed by one more quarter, taking the overnight rate to 2.50%, below what the futures rate is currently valued at.
Whether or not 2.50% is the final price point depends on how relations with the United States develop after decades of free trade.
“Tariffs are a clear, unequivocal negative for the Canadian economy and the Bank of Canada will be forced to respond with lower rates if we get tariffs,” said Benjamin Reitz, Canadian rates and macro strategist at BMO Capital Markets.
“I hope it’s all temporary or it never happens, but there’s no way to know where this is going,” he said.
Canadian inflation, which eased to 1.9% in November from 2.0% in October, is expected to remain well within the BoC’s target of 1-3% in the coming quarters and an average of 2.1% this year and 2.0% next.
