BoC Holds at 2.75%, Market Eyes Future Cuts Amid Trade Uncertainty
Article published on March 12th, 2025 3:00AM UK Time
The Bank of Canada (BoC) opted to hold its policy rate at 2.75%, in line with market expectations, while signaling a cautious approach amid rising inflationary risks and trade tensions. Despite speculation over a more aggressive 50bps rate cut, Governor Macklem clarified that such a move was not seriously considered, emphasizing a need for forward-looking policy adjustments.
Key Takeaways from the Meeting:
1. Trade War Concerns Weigh on the Outlook
- Heightened trade tensions and U.S.-imposed tariffs are expected to slow economic growth and increase inflationary pressures in Canada.
- Monetary policy alone cannot offset the impact of a trade war, but the BoC aims to prevent higher prices from entrenching into persistent inflation.
2. Inflation and Wage Growth in Focus
- Wage growth has shown signs of moderation, offering some relief on inflationary pressures.
- The BoC is closely monitoring short-term inflation expectations, which have risen due to concerns over tariffs and supply chain disruptions.
3. Economic Activity Slowing
- Consumer confidence and business spending are weakening, with firms delaying or cancelling investments amid uncertainty.
- A temporary boost in exports was noted as businesses rushed to beat impending tariffs.
Market Reaction & Outlook
- STIR Markets are currently pricing in another 25bps cut by July, with a total of 42bps in rate cuts expected by year-end (down from a prior forecast of 52bps).
- The BoC’s “proceed carefully” stance suggests policymakers will assess inflation trends and trade conditions before committing to deeper cuts.
With inflation risks still in play and external headwinds mounting, the BoC faces a delicate balancing act between managing economic growth and keeping inflation in check. Market participants will now turn their focus to upcoming data releases to gauge the central bank’s next steps. If we see a sharp slowdown in GDP prints expect sharp CAD selling as growth comes into focus over tariff concerns.