Given the extraordinary level of uncertainty created by Donald Trump’s trade policies, the Banque du Canada took the side on Wednesday to leave its key rate unchanged, at 2.75 %, while waiting to see how things will run for the economy and inflation in Canada.
“Given generalized uncertainty, it is exceptionally difficult to projection of gross domestic product growth and inflation in Canada and worldwide,” said the Canadian Central Bank.
It has therefore considered it more prudent not to even try to present forecasts for the months and years to come or to touch the interest rates in the country to which it had already applied, hitherto, 7 consecutive decreases since June, reducing its key rate from 5 % to 2.75 %.
The ball of tariffs and customs customs customs triggered by the American president can take all kinds of turns in the coming months has noted the Bank of Canada which, in the absence of formal economic forecasts, imagined two scenarios to illustrate the field of possibilities. In the first, new customs duties are finally canceled, but consumers and businesses remain shaken and cautious for a while. In the other, the trade war is rooted and plunges the Canadian economy into recession for at least a year.
-Everything was fine until then
However, everything was going pretty well for the Canadian economy at the end of last year, Tiff Macklem recalled. Inflation had generally returned to the target of 2 %, the reduction in interest rates of the Banque du Canada had stimulated household expenditure, business confidence and economic growth.
“Since then, the change of radical and protectionist CAP of American trade policy and its chaotic implementation have increased uncertainty, disrupted the financial markets, moderate the prospects for global growth and increases inflation expectations. »»
Also, the members of the Central Bank Directorate have agreed “to leave the key rate unchanged, while the guidance of customs duties and their effects are becoming clearer, said Tiff Macklem. We cannot, with monetary policy, resolve the uncertainty linked to trade or neutralize the repercussions of a trade war. »»
This implies, he said, “to be less turned to the future than usual, until the situation is clearer”. However, it also means “that we are ready to act decisively if new information clearly points to a certain direction. »»
