Bank of Canada Policy Announcement (Jan. 2025.)

With the economy doing better recently, the Bank of Canada’s decision to cut by 25bp today might have been a much closer call were it not for the looming threat of US tariffs. Any tariffs could hit the economy hard, but the Bank hinted today that it might have to refrain from providing monetary policy support, because otherwise there could be a risk that inflation takes off again. That is in turn a risk to our view that the Bank will cut twice more this year.