US Tariff Threats: Bank of Canada Slashes Interest Rates

In the wake of US President, Donald Trump’s tariff threat, the Bank of Canada has cut interest rates to 3%.

The benchmark rate was lowered by 25 basis points on Wednesday.

In a statement released by the Bank, it lamented that the imposition of huge tariffs could significantly “test Canada’s economy.”

“The economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested,” the statement read.

Following the central bank’s decision not to provide guidance on future rate moves, bonds on the market surged.

The yield on the country’s two-year notes reversed to 2.79%, its lowest since 2022.

The country’s loonie traded at C$1.4448 against the dollar as of 10:03 a.m. in Ottawa.

Policymakers led by Governor Tiff Macklem who led the benchmark cut believe the cuts will help boost the economy.

Trump has threatened to slam 25% tariffs effective from this Saturday.

The Canada government have voiced their intention to retaliate the move.

There appears to be a level of uncertainty around the outlook, especially given the tariff threat.