{"id":726986,"date":"2026-01-28T19:41:19","date_gmt":"2026-01-28T19:41:19","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/726986\/"},"modified":"2026-01-28T19:41:19","modified_gmt":"2026-01-28T19:41:19","slug":"bank-of-canada-holds-rates-says-policy-cant-make-up-for-tariff-damage-national","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/726986\/","title":{"rendered":"Bank of Canada holds rates, says policy can\u2019t make up for tariff \u2018damage\u2019 – National"},"content":{"rendered":"

Gov. Tiff Macklem at the Bank of Canada<\/a> said monetary policy, which includes adjusting interest rates if needed, can only do so much when it comes to counteracting the impacts from U.S. tariffs on Canada\u2019s economy.<\/p>\n

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This comes after the Bank of Canada held its overnight benchmark interest rate at 2.25 per cent on Wednesday, which marked the second straight hold to borrowing rates.<\/p>\n

\u201cMonetary policy cannot compensate for the structural damage caused by tariffs, and it can\u2019t target hard-hit sectors of the economy. But it can play a supporting role helping the economy through this period of structural adjustment while maintaining inflation,\u201d said Macklem.<\/p>\n

The current Canada-United States-Mexico Trade Agreement (CUSMA) is set for renegotiation later this year<\/a>, and depending on how these events evolve, the Bank says it\u2019s \u201cready to respond\u201d by adjusting rates accordingly.<\/p>\n

\u201cAs the Canadian economy continues to adjust to U.S. trade restrictions, we expect the economy to grow modestly and inflation to stay close to our two per cent target. However, uncertainty around our forecast is heightened. The range of possible outcomes is wider than usual. U.S. trade policy remains unpredictable and geopolitical risks are elevated,\u201d said Macklem.<\/p>\n

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\u201cGoverning Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today with heightened uncertainty. We are monitoring risks closely if the outlook changes. We are prepared to respond.\u201d<\/p>\n

Although they considered multiple scenarios regarding the outcome of tariff negotiations, the Bank\u2019s current projections for the Canadian economy are based on the scenario where tariffs that are currently in place remain in place.<\/p>\n

\u201cWhat that means is that the tariffs on the hard hit sectors stay, the CUSMA exemptions for everything else remain in place. That could change with the review,\u201d said Macklem.<\/p>\n

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In its projections, the Bank of Canada says economic growth, as measured by GDP, will \u201cpick up gradually\u201d over time, but will be weaker this year. 2025 is still expected to show about 1.7 per cent growth for the full year, 2026 will be up by 1.1 per cent and 1.5 per cent in 2027.<\/p>\n

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Lowering rates further could provide a boost for the economy, but there is a risk that inflation could accelerate.<\/p>\n

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\u201cWith inflation slightly above target and economic momentum still intact, keeping rates on hold preserves room to respond if trade conditions deteriorate later in the year, at that point, lowering rates could provide further stimulus for the Canadian economy,\u201d said David-Alexandre Brassard, chief economist at Chartered Professional Accountants of Canada in a written note.<\/p>\n

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\u201cTrade frictions have created real challenges for specific industries, but the overall Canadian economy has absorbed the shock better than anticipated, thanks in part to carveouts under CUSMA.\u201d<\/p>\n

Following Wednesday\u2019s announcement, the Bank of Canada released a statement detailing the economic conditions which led to Wednesday\u2019s decision.<\/p>\n

\u201cThe outlook for the global and Canadian economies is little changed relative to the projection in the October Monetary Policy Report (MPR). However, the outlook is vulnerable to unpredictable U.S. trade policies and geopolitical risks,\u201d said the Bank of Canada.<\/p>\n

\u201cU.S. trade restrictions and uncertainty continue to disrupt growth in Canada. After a strong third quarter, GDP growth in the fourth quarter likely stalled. Exports continue to be buffeted by U.S. tariffs, while domestic demand appears to be picking up. Employment has risen in recent months. Still, the unemployment rate remains elevated at 6.8 per cent and relatively few businesses say they plan to hire more workers.\u201d<\/p>\n

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Canada\u2019s GDP, or Gross Domestic Product, showed the economy shrank 0.3 per cent in October, <\/a>and the labour market showed signs of weakening in December, when the unemployment rate increased to 6.8 per cent<\/a> from 6.5 per cent in November, according to Statistics Canada.<\/p>\n

Consumer inflation was last measured at 2.4 per cent in December<\/a>, which is roughly in line with the Bank of Canada\u2019s two per cent target.<\/p>\n

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