Posted on
March 12, 2025
by
Maddison Dombroski
The Bank of Canada just lowered its key interest rate to 2.75% to help support the economy.
At the start of 2025, Canada’s economy was doing well, with steady growth and inflation close to the 2% target. But new trade tensions and tariffs from the U.S. are expected to slow things down and push prices higher. There’s a lot of uncertainty about what’s coming next.
The U.S. economy has recently slowed, while inflation there is still a bit high. Europe had some small growth at the end of 2024, and China’s economy is doing well due to government support. Meanwhile, stock markets have dropped, bond yields have fallen, and oil prices have been unpredictable. The Canadian dollar has stayed about the same compared to the U.S. dollar but has lost value against other currencies.
Canada’s economy grew by 2.6% in the last part of 2024, better than expected. Lower interest rates helped people spend more, especially on homes. But in early 2025, growth is expected to slow because businesses and consumers are becoming more cautious. Many companies are putting investment plans on hold, and people are feeling less confident about spending. However, exports increased as businesses rushed to sell goods before new tariffs hit.
Jobs were growing at the end of 2024, and unemployment dropped to 6.6%. But in February, job growth stalled. While lower interest rates have helped create jobs, trade issues could cause problems in the job market. Wages are also rising more slowly.
Inflation is close to the Bank of Canada’s 2% target. A temporary tax break made some things cheaper, but prices went up slightly in January. In March, inflation is expected to rise to around 2.5% as the tax break ends, with housing costs still a big factor. Short-term inflation expectations have increased because of tariff concerns.
Even though the economy has been stronger than expected, ongoing trade uncertainty is making people and businesses hold back on spending and investing. With inflation under control, the Bank of Canada decided to lower interest rates by 0.25% to keep the economy stable. While they can’t stop the effects of a trade war, they can help keep inflation in check. The Bank will keep a close watch on inflation and economic trends to make sure things stay on track.
The next interest rate update is scheduled for April 16, 2025.
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