Canada’s central bank held its key lending rate at 2.25% today, in a widely expected move, while warning that the economy remains “vulnerable to unpredictable US trade policies.”
After a series of cuts beginning in 2024, the Bank of Canada has indicated it wants to keep rates unchanged for as long as possible, in part to assess the impacts of President Donald Trump’s tariffs.
Trump’s protectionism has sparked a “structural change” in Canada, which is uniquely vulnerable to US levies given the interconnected nature of the two economies, the bank has said.
“US trade restrictions and uncertainty continue to disrupt growth in Canada,” the bank said, days after Trump threatened 100% tariffs on Canadian goods – levies that would upend the economy if implemented.
But the central bank also noted that the risk of more severe economic pain lies ahead.
Trump has so far broadly adhered to the existing North American free trade agreement, which he signed and praised during his first term.
His sectoral tariffs – particularly on autos, steel, and aluminum – have hit Canada hard, but more than 85% of all bilateral trade has remained tariff free under the terms of the United States-Mexico-Canada Agreement (USMCA).
That deal is set for revision talks over the coming months, and Prime Minister Mark Carney has repeatedly stressed its importance to Canada.
“The upcoming review of the (USMCA) is an important risk,” the Bank of Canada said.