In an interview, Governor Tiff Macklem revealed that the Bank of Canada initially contemplated maintaining its key policy rate at 3% but ultimately decided to decrease it for the seventh consecutive time, reducing it by 25 basis points to 2.75%. This decision was influenced by concerns about inflationary pressures, weakened growth due to trade uncertainty, and President Donald Trump's tariffs.
Macklem explained, "We did discuss the option of staying at 3% as well as cutting to 2.75% ... the argument for staying at 3% was growth has been stronger than we expected." However, due to uncertainties surrounding U.S. trade and tariff policies, the bank opted to lower the rate to address shaken consumer and business confidence and potential impacts on domestic and foreign demand.
The Governor highlighted that the Governing Council concluded that reducing the policy rate was the most appropriate action given the circumstances, as consumer and business confidence had been affected by the tariff threat, which could significantly impact domestic demand. Additionally, he emphasized that with inflation close to 2%, a rate cut of 25 basis points was deemed suitable.
(Editing by David Ljunggren)
Keywords: CANADA CENBANK/GOVERNOR