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Bank of Canada to Adjust Policy, Adopting a Less Forward-Looking Approach, Says Governor

The Bank of Canada announced that uncertainty surrounding U.S. tariffs has prompted a shift in its approach to monetary policy, making it less forward-looking than usual.

In a speech, Governor Tiff Macklem indicated that the bank would focus more on policies adaptable to various outcomes, rather than committing to a specific economic forecast. He expressed concern that miscalculating the economy's trajectory could render the bank's actions ineffective or exacerbate issues.

Macklem emphasized the importance of setting policy that minimizes risk: "That means being less forward-looking than normal until the situation is clearer." He also noted the necessity of being flexible and ready to act swiftly when circumstances become clearer, although he did not provide specific details.

He reaffirmed the bank's commitment to maintaining low inflation and ensuring that price increases from tariffs do not propagate throughout the economy. The ongoing threat of tariffs and the ensuing unpredictability are negatively impacting both business investments and consumer sentiment, particularly as the U.S.—Canada’s largest trading partner—continues to fluctuate in its trade policy.

Macklem highlighted that a high degree of uncertainty leads the bank to place greater emphasis on potential risks. The next monetary policy decision will be announced on April 16, alongside a new set of economic projections.

He acknowledged that the unpredictability surrounding tariffs complicates the assessment of how much they will affect demand and consumer prices. The more inflationary the impact, the greater the focus will need to be on anchoring inflation expectations, especially as inflation rises more rapidly.

The Bank of Canada aims to maintain inflation at 2%, which is the midpoint of its 1-3% target range. Sectors such as energy and agriculture are particularly vulnerable to tariff impacts.

To keep inflation anchored, the BoC will closely monitor the influence on consumer prices, enhance its analytical capabilities, and improve its communication strategies. Macklem noted that while the Canadian economy had navigated a soft landing, it now faces a new economic crisis.