The Bank of Canada (BoC) cut interest rates at a sixth straight meeting yesterday. This was the BoC’s first interest-rate decision of 2025. Canada’s central bank also announced the end of its quantitative tightening program. While the BoC expects stronger growth in Canada’s economy this year, looming tariffs weigh on its outlook.

• The BoC reduced its policy interest rate by 25 basis points (bps) to 3.00%. The cut was widely expected, based on a Bloomberg survey of economists. This was the BoC’s sixth consecutive rate cut but lower than the 50-bp rate cuts at the previous two meetings.
• The BoC believes inflation will remain near its 2% target. Inflation has come down considerably over the past few years, which prompted the BoC to begin lowering interest rates. Canada’s central bank expects the economy to strengthen this year. However, tariffs could have a negative impact on Canada’s economic growth.
• Canada’s central bank removed any guidance on future rate cuts. The BoC will need to wait to see how deep and extensive the tariffs are, and their actual impact on Canada’s economy. The BoC called its 200 bps in rate cuts since last June “substantial.”
• The US Federal Reserve Board (Fed) also made its first rate announcement of 2025 yesterday, deciding to hold steady at a target range of 4.25%–4.50%.

Central banks in Canada and the US are currently facing different economic environments. However, the economic outlook for both is clouded by the threat of tariffs. Canada’s trade activity could drop considerably. Meanwhile, there are concerns tariffs could push up inflationary pressures in the US. Both central banks will have to monitor the impact closely and act accordingly. The BoC avoided any future policy guidance as it waits to see the extent and impact of US tariffs.

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