Canada Bank reduced the main interest rate again on Wednesday, and reduced it by 25 basis points to stand by 3 percent.
The decrease in a quarter of a point is smaller than the central bank in two decisions in the previous interest rates, as it reduced the rate by 50 basis points at a time.
The governor of the Canada Bank, Tif McLim, said in his remarks after the reduction, that this step was part of its efforts to restore the stability of prices.
But he also warned that the definitions proposed by US President Donald Trump creates “great uncertainty” to move forward.
This is what he said.
Tif Maclim: Good morning. I am pleased to be here with the Deputy of the great Governor Caroline Rogers to discuss our policy decision and monetary policy report (MPR).
Today, we reduced the political interest rate by 25 basis points. This is our sixth decrease in a row, and our policy rate is three percent.
We also announced our plan to complete the normalization of our public budget and end the quantitative tightening. The bank will rebuild asset purchases in early March, and gradually begins until its public budget will stabilize this year and then begin to grow modestly with economic growth.
We have three main messages this morning:
First, inflation has been close to the two percent of last summer. The monetary policy has worked to restore prices.
Second, it enhances low interest rates from home spending, and economic activity is picking up.
Third, the possibility of a commercial conflict caused by a new American tariff on Canadian exports is a state of main uncertainty. This may be very troubled by the Canadian economy and moves the economic outlook.
Since it is impossible to predict the scope and duration of the potential trade conflict, the MPR projection we published today provides basic expectations in the absence of definitions. We also offer some discussion about the possible consequences of the main trade conflict.
Let me expand in the first two messages before turning to the threat of definitions.
First, inflation. A year ago, inflation was three percent, and short -term expectations were still high and inflationary pressure was wider than usual.
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In recent months, inflation has been close to two percent, and the expectations of business and consumer have been largely normalized and there is no longer evidence of broad -base inflationary pressures. Himpinum rates are still high, but it gradually decreases.
Although we expect some fluctuations in the inflation of the consumer price index due to temporary tax measures, our expectations are that inflation will remain close to the goal of two percent over the next two years.
Second, growth.
There are signs that economic activity is gaining momentum, as previous interest rate discounts operate on their way through the economy. Low borrowing costs enhance the activity in the housing market as well as consumer spending on large ticket elements such as cars.
Pick -up has started home spending in expanding the scope of other consumer elements, and is expected to enhance more. The investment of business was weak, but it is expected to gradually increase. Exports are supported by a new export of oil and gas.
Labor has been strengthened in recent months. But with the delay in creating job opportunities in the work of the workforce for more than a year, the labor market remains soft. The unemployment rate was 6.7 percent in December, and wage pressure, which proved sticky, shows some signs of mitigation.
The bank expects that GDP growth will organize from 1.3 percent in 2024 to 1.8 percent in 2025 and 2026. It is expected that growth in the GDP per person will be captured as lower interest rates and high -spending rates.
The expected increase in the growth of gross gross domestic product is more modest than it was in October, due significantly to a decrease in population growth that reflects new federal immigration policies.
There are risks about our perception, and the Governing Council is equally interested in inflation that exceeds the target of two percent or decreases under it.
In the absence of a tariff threat, the risks of inflation expectations are almost balanced.
Allow me to move now to the issue of definitions.
American commercial policy is a major source of uncertainty. There are many possible scenarios. There is a lot that we do not know, we do not know what the new definitions will be imposed, whenever it will last or time.
We do not know the scope of revenge measures or what is the financial support to be provided.
Even when we know more about what will happen, I must be clear, it is still difficult to be accurate in economic influences because we have little historical experience with tariff changes in the size in which the United States thinks.
However, some things are clear.
Long -term commercial conflict and Arish Al Qaeda will badly harm the economic activity in Canada.
At the same time, the cost of the high imported goods will put the direct upward pressure on the inflation. The size and timing of effects will depend on production and inflation in an important way on how companies and families in the United States and Canada are adapting to high import prices.
Unfortunately, definitions mean that economies are simply less efficient – we produce and gain less without tariffs. Monetary policy cannot be compensated.
What we can do is help the economy set. With inflation returning around the two percent goal, it is better to be a source of economic stability.
However, with a single tool – policy interest rate – we cannot tend to the weakest production and high inflation at the same time.
Since we consider our monetary policy response, we will need to carefully evaluate the low pressure on inflation from weakness in the economy, and weighed this in exchange for upward pressure on inflation from high input prices and disrupting the supply chain.
So let me tell you what we do in preparing.
In recent years, we have invested in better information about supply chains, commercial links and communications between sectors. This helps us analyze the effects of symptoms, including definitions.
We have begun to assess the possible consequences of different tariff scenarios, and we offer an example in the report of monetary policy.
We increase our awareness activities all over the country to hear it directly from those affected by the incremunition.
This includes increasing business polls and consumers to better understand how the impact of uncertainty in trade on their decisions and how they will deal with a commercial conflict.
We will update you on our analysis and evaluation with the development of developments.
After regaining low inflation and dramatically reduced interest rates, monetary policy is better to help the economy adapt to new developments.
As is always the case, the bank will be guided by our monetary policy framework and our commitment to maintaining price stability over time.
