The Bank of Canada has announced a 25 basis point reduction in its key policy interest rate, bringing it down to 3%. This decision is influenced by potential economic risks stemming from proposed U.S. tariffs on Canadian exports, which have contributed to a significant depreciation of the Canadian dollar.
Governor Tiff Macklem emphasized that while the exchange rate has not directly constrained monetary policy decisions, any substantial future currency movements will be considered in policy settings. He also noted that although the bank is far from implementing quantitative easing, it remains prepared to support economic growth if necessary.
Inflation is anticipated to rise initially due to the tariffs; however, the bank aims to prevent this from becoming a persistent issue. Senior Deputy Governor Carolyn Rogers echoed these sentiments, highlighting the importance of responding to inflation spikes to prevent long-term economic disruptions.
