Bank of Canada Cuts Rates Again but Warns of Inflation Risks - FPG Fortune Prime Global

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Bank of Canada Cuts Rates Again but Warns of Inflation Risks

March 13, 2025

The Bank of Canada (BoC) reduced its key interest rate by 0.25 percentage points on Wednesday, marking its seventh consecutive rate cut. The decision aims to counteract the sharp decline in consumer spending and business investment, which has been impacted by ongoing trade-policy uncertainty.

Despite the rate cut, the BoC signaled a cautious approach moving forward, citing concerns over inflation risks driven by rising tariffs. Governor Tiff Macklem emphasized that the central bank is navigating a “new crisis” where economic weakness must be weighed against the potential for inflation to accelerate.

The latest cut brings the BoC’s overnight rate to 2.75%, a steep decline from the 5% level just nine months ago. However, Macklem noted that further cuts may not come as aggressively, as the bank remains focused on maintaining its 2% inflation target.

Canada’s inflation rate is expected to rise to 2.5% in March, up from 1.9% currently, due in part to the impact of tariffs on consumer prices. This complicates the BoC’s monetary policy strategy, as lowering rates too much could fuel price increases.

Moving forward, senior BoC officials will take a measured approach in determining future rate adjustments. Investors and businesses will closely watch the central bank’s next moves, as the balance between economic growth and inflation remains a key challenge in the months ahead.

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