Cautious Approach to Further Rate Cuts
The Bank of Canada, the central bank of Canada, lowered its benchmark interest rate by 0.25 percentage points on the 17th (local time) in response to the economic and labor market impact of the tariff policies implemented by the Donald Trump administration in the United States.
The Bank of Canada announced that it held a monetary policy meeting that day and decided to cut the overnight repo (repurchase agreement) rate, which serves as the benchmark interest rate, by 0.25 percentage points to 2.50%.
This is the first rate cut since March. After initiating its first rate-cutting cycle in June last year, the Bank of Canada lowered the benchmark interest rate a total of seven times through March. Since then, it had kept the rate unchanged at 2.75% for three consecutive meetings.
Bloomberg News reported that the rate cut decision was in line with the expectations of most economists.
Tiff Macklem, Governor of the Bank of Canada, stated in his opening remarks that day, "Given the weakening economy and the reduced risk of rising inflation, we determined that lowering the interest rate is appropriate to better balance the risks ahead."
However, he took a cautious stance regarding the possibility of additional rate cuts in the future. In previous statements following rate freezes, the need for further cuts had been mentioned.
Regarding its future policy direction, the Bank of Canada stated, "We will proceed cautiously and pay particular attention to risk factors and uncertainties throughout the process." The bank also noted, "Disruptions caused by changes in the trade environment will place a burden on economic activity and act as a factor increasing costs."
In the second quarter, Canada's real gross domestic product (GDP) decreased by 1.6% quarter-on-quarter on an annualized basis, marking the first negative growth in seven quarters. This was influenced by a decline in exports and corporate investment, as well as the impact of U.S. tariffs and trade uncertainty.
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