Bank of Canada expected to cut interest rate amid trade war

The Bank of Canada's interest rate announcement arrives on Wednesday in a cloud of uncertainty thanks to a shifting trade war with the United States.

The Bank of Canada’s interest rate announcement arrives on Wednesday in a cloud of uncertainty thanks to a shifting trade war with the United States.

Most economists expect the central bank will deliver another quarter-point rate cut while it waits to see how long the dispute with Canada’s largest trading partner lasts.

The Bank of Canada faces a difficult task: setting monetary policy at a time when inflation has shown signs of stubbornness and the economy picks up steam, while risks of a sharp downturn tied to U.S. tariffs loom on the horizon.

“It’s a very difficult position for the Bank of Canada to be in,” said Randall Bartlett, Desjardins Group deputy chief economist, in an interview.

Even as U.S. President Donald Trump followed through on his promises to impose sweeping tariffs on Canadian goods on March 4, the exact nature of those tariffs have shifted with a series of pauses and amendments in the days since.

“Who knows what this could look like from day-to-day? It’s almost anyone’s guess,” Bartlett said.

There will be harsh consequences for the Canadian economy in the event of a prolonged trade war with the U.S.

Inflation is likely to rise in the near-term from the trade disruptions, Bartlett said, and job losses in hard-hit sectors could quickly pile up if those industries don’t receive tariff reprieves.