BoC likely to cut rates 25 bps to cushion economy from US tariffs

Canada has already created uncertainty among businesses and households, hurting investment and spending

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The Bank of Canada (BoC) will likely cut its benchmark rate by a quarter point on Wednesday to cushion the economy against US tariffs, several economists said.

If the BoC delivers the 25-basis-point cut, it will be the bank's seventh consecutive reduction, bringing down the policy rate to 2.75 per cent, a massive 225-bps drop from nine months ago.

“The bank governor will err on the side of supporting the economy during what could be a downtrend from the tariffs,” said Tony Stillo, director at forecasting and analysis group Oxford Economics.

US President Donald Trump's abrupt shifts on the timing, products involved and extent of tariffs on imports from Canada have already created uncertainty among businesses and households, hurting investment and spending.

The potential impact of retaliation from Canada has heightened the unpredictability further.

BoC Governor Tiff Macklem is “in a bind,” Stillo said about Canada’s monetary policy path.

Cutting once in March and then holding rates to let the tariffs’ impact play out would be a pragmatic approach, he added.

Currency markets are seeing an almost 95 per cent chance of a 95-bps cut on Wednesday, and 20 economists out of 23 polled by Reuters expect the quarter-point reduction.

The bank will announce the rates at 9:45 am EDT (345 GMT) on Wednesday.