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March 12, 2025BANK OF CANADA MONETARY POLICY The Bank of Canada reduced its target for the overnight rate by 25 basis points to 2.75%, with the Bank rate reduced to 3.0% and the deposit rate down to 2.7%.
Growth in Canadian economy was stronger than expected in the last quarters of 2024 and beginning of 2025 with inflation around 2% and a robust GDP growth. However, continuously changing tariff threats restrict consumer spending intensions and business’ plans to hire and invest.
Canada economy grew 2.6% in the last quarter of 2024. Economic growth in the first quarter of 2025 is likely to slow with intensifying trade conflict weighs on sentiment and activity. The negative impact of slowing domestic demand has been partly offset by a surge in exports prior to tariffs.
Employment growth has been strong at 6.6%in January, but in February job growth stalled. Heightened trade tensions could disrupt recovery in the job market. Wage growth has shown signs of moderation.
Inflation in Canda has been around 2% since August 2024 and Bank’s preferred measures of inflation remain above 2% due to persistent shelter price inflation. The temporary GST/HST tax holiday will continue to impact the volatility. CPI inflation is expected to increase to about 2.5% in March with the end of the tax break.
US economic growth looks to have slowed in recent months and inflation remains above the 2.0% target. Euro Area economic growth was modest in the end of 2024. China’s economy has posted strong gains, supported by government policies. Oil prices have been volatile and are trading below the assumptions in the Bank’s January Monetary Policy Report. The Canadian dollar is broadly unchanged against the US dollar but weaker against other currencies.
Monetary policy cannot offset the impacts of a trade war. It can ensure higher prices do not lead to ongoing inflation. The Governing Council will be assessing downward pressures on inflation from weaker economy and upward pressure on inflation from higher costs. The Bank is committed to maintain price stability for Canadians.
The next scheduled date for announcing the overnight rate is April 16, 2025. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the Monetary Policy Report at the same time.
Source: Monetary Policy press release
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