Bank of Canada (BoC) drops their rate by another 0.25%. It also announced the end of quantitative tightening and will gradually restart asset purchases. This is telling. It’s a quiet signal that they’re wary of economic weakness, trade risks, and drifting further from the US Fed.
The Canadian dollar has depreciated materially against the US dollar, largely reflecting trade uncertainty and broader strength in the US currency. Bond yields tell two stories: US yields are up, driven by strong growth and sticky inflation. Canadian yields are down slightly, suggesting weaker economic momentum. Canadian business investment remains weak.
BoC released its latest forecasts today, but with trade tariffs on the horizon, a lot of it already feels outdated—like turning in an assignment when the questions just changed. Even they acknowledge this in their announcement: “scope and duration of a possible trade conflict are impossible to predict.”
Wage pressures, though sticky, are easing. Shelter inflation is still high but gradually coming down. Inflation is tracking close to 2%, and the BoC expects it to stay near target over the next two years. Putting aside the tariff variable, this forecast makes further rate hikes less likely, as the BoC sees its target as met—or at least, they’d be cautious about cutting too fast.
Trade risks are the wild card. If GDP slows, the BoC may lean toward more cuts, but if tariffs push prices higher, they could hold off, creating uncertainty around future rate moves.
The BoC points out there have already been substantial cumulative rate cuts since last June. Lower interest rates are boosting household spending. Ends announcement with a strong statement: “if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested.”
Next BoC meetings March 12, then April 16. US Fed announcement is later today (expected hold), next March 19. This widening gap between US and Canadian rates puts added pressure on the BoC. A weaker CAD and rising import costs could make BoC think twice before cutting further.