Canada Monetary Policy Research Brief

Bank positioning economy for looming tariff uncertainties. The Bank of Canada lowered its overnight rate 25 basis points to 2.75 per cent. Though markets were favouring a cut, it was not so certain among major banks, with some economists calling for a pause. In recent months, inflationary pressures have begun to mount, which was largely stoked by falling interest rates. In the fourth quarter, real GDP growth accelerated to 2.6 per cent annualized, driven by a 16.7 per cent surge in residential investment, a 10.7 per cent increase in business investment and a 5.6 per cent jump in consumer spending. Retaliatory tariffs are also heightening inflation risks. Nevertheless, the central bank believed the downside risks to economic growth amid an ongoing trade war outweighed these potential price pressures. In order to best position the economy against potential trade fallouts, the Bank of Canada continued its monetary easing