Bank of Canada considered cutting interest rate in April as Trump tariffs roiled markets

Bank of Canada governor Tiff Macklem speaks at an event in late February. Minutes from the central bank's latest interest decision indicated that some policymakers wanted to cut the interest rate. Photo by Peter J. Thompson /Financial Post

Article content

Some members of the Bank of Canada‘s governing council discussed cutting the central bank’s policy rate by 25 basis points, before ultimately arriving at a consensus to hold to wait for “more information on tariffs and their impact,” according to a summary of their deliberations released on Wednesday.

Article content

Article content

The central bank’s decision to hold its interest rate at 2.75 per cent on April 16 followed seven consecutive cuts beginning in June 2024. During remarks explaining the decision, Bank of Canada governor Tiff Macklem said the bank kept the policy rate unchanged in order to gather more information about “both the path forward for U.S. tariffs and their impact.”

Article content

Article content

Deliberations of the governing council began on April 9, the same day U.S. President Donald Trump announced a delay of some of the reciprocal tariffs he had unveiled a week earlier. The tariffs had been met with negative reactions in financial markets and worries about a global recession.

Article content

Article content

“Some members took the view that with the economy on solid footing coming into 2025, and with the cuts to the policy interest rate at the past two meetings, Governing Council should keep the policy interest rate unchanged while they gained more information on tariffs and their impacts,” the summary of deliberations said. “Continuing to lower the policy interest rate at this meeting could end up being premature in a context where past cuts were still working their way through the economy and where upward pressure on inflation from tariffs could come through quickly.”

Article content

Article content

Other members saw the situation differently, viewing the recent softening in business and consumer confidence, the job market, housing and retail trade as signs of a weakening economy.

Article content

Article content

“In addition, following the tariff announcements on April 2 and subsequent financial market turmoil, concerns about a deeper U.S. recession and global economic slowdown increased,” the minutes said. “In this context, they viewed a further reduction in the policy interest rate to support the economy as appropriate given that the near-term inflation risks were muted.”

Article content

In its monetary policy report released on April 16, the central bank presented two scenarios for how U.S. trade policy could impact the Canadian economy. In scenario one, growth begins to stall in the second quarter of this year, with a sharp decline in business investment, but the economy does not enter a recession. This scenario assumes most of the tariffs are negotiated away. In scenario two, the Canadian economy enters into a recession, with growth averaging -1.2 per cent for four quarters as tariffs remain in place and a full global trade war occurs. Inflation also temporarily rises above three per cent in 2026, before returning to two per cent.