Bank of Canada cuts benchmark rate by 25 basis points
Source: Live Mint
TORONTO, Jan 29 (Reuters) – The Bank of Canada on Wednesday trimmed its key policy rate by 25 basis points to 3%, cut growth forecasts and warned Canadians that a tariff war triggered by the United States could cause major economic damage.
MARKET REACTION: LINK: https://www.bankofcanada.ca/2025/01/fad-press-release-2025-01-29/
COMMENTS ANDREW KELVIN, HEAD OF CANADIAN AND GLOBAL RATES STRATEGY AT TD SECURITIES
” I think the message here is that they think that the rate cuts that are in place have worked and they’ve done quite a bit to improve the Canadian economy.
It seems like they’re pretty content that they have achieved a price stability here, but obviously you have a large structural change in the trade relationship of the US that would test the Canadian economy’s resilience. And the signal here is that they are prepared to react to that.” ” I think they (BoC) would be more likely to ease in response to tariffs than they would be to hold.”
DOUG PORTER, CHIEF ECONOMIST, BMO CAPITAL MARKETS
“Well, the rate cut was really no surprise … I think what most of us were looking for was how the Bank of Canada addressed the tariff threat. It seems, at first blush, it seems to be mostly in line with others. Their underlying view on the economy is roughly in sync with what we thought – in other words the pre-tariff world of growth of just under 2% (for 2025).”
“I would say if anything their estimate of the growth hit is a bit lighter than some others have been coming up with but that doesn’t change the bigger picture, of course, we are dealing with a very serious situation if Canada is indeed faced with 25% tariffs. The Bank of Canada would be in a tough situation but our view is that they would become more aggressive in terms of rate cuts if that’s what we’re faced with.”
NICK REES, SENIOR FX MARKET ANALYST AT MONEX EUROPE LTD
“The Bank of Canada’s decision to cut rates by 25 bps (basis points) today was as expected, but at first glance, we think the degree of caution expressed regarding further rate cuts is unwarranted. If, as we expect, a U.S. levy on Canadian imports is imposed, this would do significant harm to Canadian growth, a point noted by the BoC. But a rising output gap under such a scenario should be the main concern, and would do much to absorb any inflation pressures stemming from trade disruption and a weaker loonie. Holding policy tight against such a backdrop only risks undue economic scarring.” (Reporting by Fergal Smith and Nivedita Balu; Editing by Caroline Stauffer)
