By Promit Mukherjee
OTTAWA (Reuters) -The Bank of Canada is almost certain to reduce its key policy rate to 2.25% on Wednesday, with President Donald Trump’s latest threats of higher tariffs reinforcing expectations that a rate cut would be needed to help spur demand and support growth.
Money markets show a more than 90% chance of a 25 basis point rate cut, up from an 80% chance last week, after Trump cut off trade talks and said he would impose more tariffs on Canada out of anger over an anti-tariff TV advertisement by Ontario province.
The ad ran during the first game in Major League Baseball’s World Series on Friday.
No details have yet been announced about how the additional tariffs would be implemented or on what products.
Even before the latest threat, however, economists and analysts had been expecting a lowering of borrowing costs as recent economic data and surveys showed that growth was not enough to shrink historically high unemployment levels.
Businesses also expect to keep investments limited to regular maintenance and do not plan any major boost to hiring, given the poor outlook for demand, data has shown.
“The soft economy and job market will likely weigh heavier for policymakers,” said Robert Kavcic, senior economist at BMO Capital Markets.
He said there were concerns about stubborn inflation and an upcoming fiscal stimulus from the government’s federal budget next week, but that does not offset the need for economic support.
The Bank of Canada will announce its monetary policy decision at 9:45 a.m. (1345 GMT). It will also release the quarterly Monetary Policy Report, including forecasts for the economy and inflation.
The U.S. Federal Reserve, which will also announce its monetary policy decision on Wednesday, is widely expected to cut rates by 25 basis points to 3.75-4.00%, as softer employment outweighs inflation fears.
(Reporting by Promit Mukherjee; Editing by Edmund Klamann)
Comments