The Bank of Canada cut its key overnight interest rate by 25 basis points on Wednesday, citing mounting economic risks as the ongoing trade war with the U.S. shakes consumer and business confidence.

The move, widely anticipated by economists, lowers the benchmark policy rate to 2.75%. It marks the seventh consecutive cut since the central bank began easing monetary policy in the summer of 2024 as inflationary pressures from the pandemic subsided.

“We ended 2024 on a solid economic footing. But we’re facing a new crisis,” BoC Governor Tiff Macklem told reporters in Ottawa following the rate announcement. “Depending on the extent and duration of new U.S. tariffs, the economic impact could be severe. The uncertainty alone is already causing harm.”

Macklem said the rate cut aims to soften the impact of trade volatility but cautioned that further adjustments would be made cautiously.

“We will proceed carefully with any further changes to our policy rate,” he said, noting the challenge of balancing the downside risk to economic activity with inflationary pressures from tariffs.

Many economists had expected the bank to begin holding rates by now.

Canada’s economy is reeling from unpredictable U.S. trade policies as President Donald Trump imposes, lifts and reimposes 25% tariffs on most Canadian goods shipped south of the border.

On Wednesday, he reintroduced 25% tariffs on steel and aluminum imports, a measure that hits Canada particularly hard as the largest foreign supplier of both metals to the U.S. Canada responded by imposing countertariffs on $29.8 billion worth of U.S. goods.

“These [U.S.] tariffs are completely unjustified, unfair and unreasonable,” Finance Minister Dominic LeBlanc said during a news conference on Wednesday.

He said the dollar-for-dollar countertariffs will take effect at midnight Thursday.

Macklem said the aggressive trade actions are taking a toll on Canadians, leading to job-security concerns, reduced consumer spending and stalled business investments.

“The recent shift in consumer and business intentions is expected to translate into a marked slowing in domestic demand in the first quarter of this year,” he said. “If household and business spending intentions remain restrained, the combination of weaker exports and soft domestic demand would weigh further on economic activity in the second quarter.”

Many Canadian commercial real estate investors, owners and operators are taking a wait-and-see attitude with investments and developments as they try to anticipate how long the U.S. tariffs were last.

Macklem has previously warned that a prolonged trade war—particularly if both countries impose 25% tariffs—could erase economic growth over the next two years.

Contrary to custom, the central bank did not release updated economic forecasts alongside Wednesday’s decision.

Pictured: Bank of Canada Governor Tiff Macklem

Photo: Bank of Canada