Bank of Canada Cuts Interest Rate to 2.75% — But Don’t Expect a Rate-Cutting Spree

The Bank of Canada just trimmed its key interest rate again — this time by a quarter of a percentage point, bringing it down to 2.75%. It’s the seventh straight cut in a row, but don’t get too excited if you’re hoping for more — Governor Tiff Macklem is already throwing some cold water on that idea.

Why the cut? Blame it on the rising drama between Canada and the U.S. over tariffs. The central bank says the escalating trade war is making consumers nervous and businesses hesitant to invest or borrow. People are saving more, companies are pulling back, and the whole economy is starting to feel the chill.

“We had a pretty solid run at the end of 2024,” Macklem said. “But now we’ve got a new mess on our hands. These tariffs could hit hard — and even the uncertainty alone is already doing damage.”

What’s Going On?

The Bank had hoped to ride the wave of a decent economic stretch. Inflation was mostly on target, unemployment was down, and earlier rate cuts had juiced spending and the housing market. In short: things were looking up.

But that was before trade tensions blew up again.

Recent surveys from February show a shift. Households are worried about jobs and cutting back on spending. Businesses are struggling to get credit and dialing back plans to grow. Around half say they’ll have to raise prices to deal with tariffs — and that’s not great news when the central bank is trying to keep inflation under control.

So... More Cuts Coming?

Maybe. Maybe not. Macklem made it clear: just because rates dropped again doesn’t mean this is the start of a cutting spree. The Bank has to juggle two tricky forces — a slowing economy (which would call for lower rates) and stubborn inflation (which calls for caution). That’s a tough spot to be in.

“We didn’t seriously consider a bigger cut,” Macklem said. “Our job is to make sure rising prices don’t stick around.”

Right now, at 2.75%, rates are sitting in what the Bank calls the “neutral zone” — basically, interest rates that neither help nor hurt the economy much. It’s a sort of middle ground, which makes it harder to justify aggressive moves in either direction.

What Happens Next?

The Bank thinks Canada’s economy will likely slow down in early 2025 as the trade fight drags on. There are already hints that the recovery in jobs and growth might stall out. And while slower growth could cool inflation, the tariffs themselves might push prices higher — so it’s a bit of a policy headache.

“This isn’t like the last time we had a downturn,” Macklem said. “We’re dealing with both inflation and a potential slowdown — it’s a weird combo.”

TL;DR:

• Interest rate cut: Down to 2.75%
• Why? Trade war jitters are shaking up business and consumer confidence
• Will there be more cuts? Maybe, but the Bank’s being cautious
• Outlook: Slower growth ahead, but inflation is still a concern

Bottom line: the Bank of Canada is trying to thread the needle — giving the economy a little nudge without accidentally pouring fuel on the inflation fire. Whether this cut is enough to keep things steady in a trade-war storm? That’s still up in the air.