Inflation, labour market and Trump threats all hovered over central banks’ January decision.
The Bank of Canada has lowered its benchmark rate again, making a sixth consecutive cut amid continuing signs of a slowing economy and falling inflation.
The central bank said on Wednesday morning that it had trimmed the key rate by 25 basis points, a move that brings it to 3% but also marks a smaller reduction than its previous two cuts.
That decision arrives after the annual inflation rate dropped to 1.8% in December, just below the Bank’s 2% target, spurred in large part by the federal government’s temporary GST break.
Without that tax break, overall inflation would have jumped to 2.3% – but while the labour market appeared to strengthen in December, adding a better-than-expected 91,000 jobs, the threat of tariffs on Canada by new US president Donald Trump kept a January rate cut firmly on the table.
Bank decisionmakers slashed rates by 50 points in both October and December, with governor Tiff Macklem describing Trump’s tariff threats as a “major new source of uncertainty” last month and underlining the potential they posed for significant disruption to both the US and Canadian economies.
The Bank of Canada’s benchmark rate has now fallen by a full two percentage points since the middle of last year. The central bank introduced a flurry of rate hikes throughout 2022 and 2023 in a bid to curb a spike in inflation – and after holding that rate steady at 5.0% for nearly a year, its highest level since 2001, it began cutting last June.
