By Promit Mukherjee
OTTAWA (Reuters) – The Bank of Canada will most likely trim its key benchmark rate by 25 basis points this week and is widely expected to offer an analysis on the impact of potential U.S. tariffs, economists and analysts said.
This is the first time the central bank will announce its rate decision and share projections on the economy since the change in government in the United States, Canada’s biggest trading partner.
President Donald Trump, who took office last week, has been threatening a barrage of tariffs on Canadian imports since he won the U.S. election in November. In his latest comments, he threatened a 25% tariff on Canada from Feb. 1.
His comments have created confusion for businesses and investors and clouded economists’ projections, making the BoC’s monetary policy decision and its estimates this week critical.
“With tariffs clouding the economic outlook, we judge that the Governing Council will opt for a 25bp (basis points) policy rate cut,” Thomas Ryan, an economist at Capital Economics, wrote in a note.
Currency swap markets are betting on an 83% chance of a rate cut on Wednesday.
If the BoC cuts as expected, the benchmark rate will come down to 3.0%. It would be the bank’s sixth consecutive rate cut since June, shrinking the rate by a total of 200 basis points over seven months.
In a Reuters poll of economists, 80%, or 25 out of 31 respondents, said they expect a quarter-point rate cut on Wednesday, a step down from December’s half percentage-point move.
But most of them said it was difficult to forecast rates beyond the upcoming meeting due to the threat of tariffs looming over the Canadian economy.
BoC Governor Tiff Macklem will announce the governing council’s decision at 9:45 a.m. ET (1345 GMT) on Jan. 29. The bank will also release its first monetary policy report of the year, in which it will update October’s projections on inflation and the economy.
Economists are hoping to see the bank’s analysis on the economy, jobs and inflation if a 25% tariff is imposed on Canada and the possible outcomes if and when Canada retaliates.
“I will be looking for the result of the scenario analysis (of tariffs) that show us how much they think it will impact the Canadian economy,” said Jules Boudreau, Senior Economist at Mackenzie Investments, who also expects a 25 basis point rate cut. “And then how do they react to the stress test in that environment.”
Nathan Janzen, Assistant Chief Economist at RBC, also said the bank would have to cut to boost the economy and help reduce unemployment, which is still significantly higher than last year.
Janzen said the BoC’s cuts so far had been “just easing off” the brakes. “They are still not moving into a range of interest rates that would be really stimulative for the economy,” he said.
(Reporting by Promit Mukherjee in Ottawa; Editing by Nia Williams)
Comments