The Bank of Canada maintained its key interest rate at 2.25 per cent on Wednesday amid a recent spate of soft economic data and labour slack.
At this juncture—all things being equal—we do not expect the central bank to change its policy rate this year. Upcoming free-trade negotiations with the U.S. and Mexico could prove contentious, so any policy shift on the central bank’s part would likely be in favour of cutting rates should growth slow, labour slack increase or if there is a more pronounced break in economic relations with the U.S.
The central bank is clearly preparing investors and other domestic policymakers for an extended pause by noting the structural headwinds to the economy caused by U.S. protectionism. Canada’s economic outlook would have to significantly change for the Bank of Canada to move in one direction or the other.
Meanwhile, a ruling from the U.S. Supreme Court on the legality of the current administration’s use of tariffs is still pending. In the interim, the average U.S. tariff rate on Canadian goods sits at 5.96 per cent as of the end of November; in comparison, Mexico’s rate is currently 8.43 per cent and China’s is at 30.75 per cent.
Read RSM Canada’s latest analysis in The Real Economy Canada and subscribe for more updates.
