Bank of Canada rate pause likely amid ‘extremely fluid’ tariff situation: Economists #CanadaFinance

Some Canadian economists and financial experts are solidifying forecasts for a pause at the Bank of Canada’s (BoC) April interest rate announcement as the world grapples with the implications of U.S. President Donald Trump’s “Liberation Day” tariff announcement.

Though some experts have suggested the specific tariff outcome for Canada was better than expected, they say the economic picture could remain clouded for an indefinite period by the impact of the tariffs on the global economy, uncertainty about how various nations will respond, and the potential for the Canada–U.S. trade war to evolve further.

“The unprecedented tidal wave of uncertainty that has washed across financial markets and the global economy looks unlikely to retreat in the near term,” Karl Schamotta, chief market strategist with payments company Corpay, wrote in a morning note.

CIBC economists Andrew Grantham and Ali Jaffery say an April BoC pause is likely, but that further cuts remain possible “because the tariffs and the uncertainty of renegotiating USMCA” — the Canada-United States-Mexico Agreement — “with Trump are still going to weigh on the economy and job market.” Nonetheless, they write, with Canada’s economy in “decent shape,” the BoC has the “luxury of waiting a bit more” with an election at the end of April that will help determine how the trade war plays out.

The global nature of the U.S. moves, however, means the risks to the Canadian economy are not only from Canada-specific tariffs. “The breadth and severity of tariffs imposed on other countries significantly heighten the risk of stagflation in the United States and raise the likelihood of a global economic slowdown or recession,” National Bank of Canada economists Stefane Marion and Matthieu Arseneau wrote.

“Unless the U.S. administration reverses course, the Canadian economy remains on track for a noticeable deceleration throughout the remainder of 2025.”

The BoC “will be closely monitoring two areas: inflation expectations and governments’ response,” a team of economists at TD Bank says in a note. “As the central bank has noted, it has limited capacity to push against a policy shock of this nature. Don’t expect a substantial drop in interest rates, but there is room for at least 50 basis points of cuts to ease financing costs.”

The tariff impact on Canada is “much lighter than assumed in our forecast,” writes BMO economist Sal Guatieri, but further evolution remains possible. He notes that “more tariffs could well be applied to lumber and pharmaceuticals, which would raise the average duty for Canada,” but also highlights the potential for many more Canadian goods to become compliant with USMCA and thus avoid Trump’s 25 per cent border security tariffs.