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Donald Trump's plans to impose high tariffs on Canadian imports would have a “dramatic” impact on the country's weakening economy, the head of the Bank of Canada warned, as rate-setters cut interest rates by half a percentage point for the second meeting in a row.
Rate setters cut the benchmark interest rate to 3.25 percent in a bid to boost growth, but said they would assess “the need for further rate cuts one decision at a time.”
“Our decisions will be guided by the information received and our assessment of the implications for inflation expectations,” the central bank said on Wednesday following the decision.
the Central Bank It cut borrowing costs five times this year to combat rising unemployment and other economic vulnerabilities.
In his post-meeting press conference, Governor Tiff Macklem acknowledged the US President-elect's threat of imposition Tariffs are 25 percent The decision on all Canadian imports was “very disturbing” and “a major source of uncertainty,” although he added that “the reality is we don't know if it will be implemented.”
Macklem said the bank is “looking at different scenarios” and “conducting preparedness analysis” for them Possible definitions.
“If these things happen, they will have a significant impact on the Canadian economy and will significantly impact our forecasts. Let's hope they don't,” he said.
Economists believe borrowing costs are likely to fall further in Canada, especially if Trump tears up the free trade agreement between the United States and its northern neighbor and Mexico.
“With the recent tough talk about trade coming from south of the border, the market has increasingly taken into account the possibility that Canada will need another significant cut,” said Chris McHaney, head of investment management and strategy at Global X Investments Canada.
Nathan Janzen, an economist at the Royal Bank of Canada, said the interest rate cuts were the central bank “releasing the brakes on the economy rather than stepping on the gas.”
“Canada's economic backdrop has not yet collapsed in a way that would cause the Bank of Canada to panic, but it is also clear that interest rates are higher than they need to be for inflation to remain at the central bank's 2 per cent target.” He said.
Although back-to-back cuts mean good news for Canadian homeowners, higher unemployment and lower growth dominate the less impressive outlook.
Canada's official data agency reported last Friday that the unemployment rate rose to 6.8 percent, compared to 6.5 percent. At the end of November, Statistics Canada said the economy grew at an annual rate of 1 per cent in the third quarter, with the expansion largely due to higher government spending.
Macklem said there were “mixed signals in the data”, but added that the G7 economy was not contracting.
“We have not seen widespread layoffs or widespread job losses as is usually the case in recessions,” he said. “We are not anticipating a recession. Our baseline is that the economy continues to grow.
