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The Bank of Canada delivered a sixth consecutive interest rate cut on Wednesday but slowed the pace of its easing cycle.
The central bank also warned that Canada’s economy would be “tested” if the United States delivers on a threat to impose blanket tariffs on Canadian goods, and said there was more “uncertainty” in its outlook because of the looming trade dispute.The Bank of Canada cut its benchmark interest rate by 25 basis points, bringing the policy rate down to 3.0 per cent. The move was widely expected by markets and most economists.The quarter-point reduction marks a step down from the Bank of Canada’s moves to cut by an oversized 50 basis points in its two previous decisions.
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The central bank shifted its monetary policy stance from tightening to easing last year amid signs inflation had come back under control and the slowing economy could use a boost. While annual inflation cooled to 1.8 per cent in December, there were signs of stubbornness in metrics of core inflation that are closely watched by the Bank of Canada.Heading into Wednesday’s decision, some economists argued that the threat of tariffs from the United States merited another rate cut from the Bank of Canada amid fears of a sharp hit to the Canadian economy if U.S. President Donald Trump were to pull the trigger.“The potential for a trade conflict triggered by new U.S. tariffs on Canadian exports is a major uncertainty. This could be very disruptive to the Canadian economy and is clouding the economic outlook,” said Bank of Canada governor Tiff Macklem on Wednesday, according to prepared remarks.
The central bank warned in a statement accompanying the rate cut that, “if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested.”More to come…
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