Canada’s Interest Rate Set At 2.25 Percent, Central Bank Refuses Further Cut

However, the bank made it clear that there is no intention to cut further at this time. Bank of Canada Governor Taffy McCallum said that the country’s economy is struggling with the effects of the US trade war and that monetary policy cannot eliminate the structural damage that has been caused by tariffs and trade restrictions. “
We have been saying for many months that monetary policy cannot eliminate the damage that tariffs have caused to the economy,” Taffy McCallum said during a news conference in Ottawa. He explained that the central bank’s policy can help the economy adapt to the new situation, but it cannot return it to its previous level.
The Bank of Canada also released its monetary policy report, which said that the ongoing trade dispute is fundamentally changing the Canadian economy. The report said that the economy shrank in the second quarter of this year due to a significant decline in exports and uncertainty in investment. At the same time, the labor market is also under pressure and hiring has slowed in many industries, especially those affected by US tariffs, such as automobiles, steel, aluminum and lumber.
The bank said that economic growth is likely to remain weak in the second half of this year. However, consumer spending is improving slightly and is expected to continue this trend until the end of the year. In addition, residential investment and government spending are also boosting aggregate demand.
The bank said that inflation is expected to remain close to the 2 percent target in the next few months. Weak economic growth is reducing price pressures, while trade tariffs are increasing business costs, and these two factors are balancing each other.

Taff McCallum said that if the economic situation and inflation remain in line with current estimates, then the interest rate is appropriate at the current level. However, if there is a clear change in the situation in the future, the bank is ready to respond to it. He said that one month of data is not enough for any decision, but a continuation of evidence is needed.

Experts say the central bank appears to have reached the limit at which interest rate cuts can support the economy. Robert Kavkach, an economist at the Bank of Montreal, said the government now needs to take direct fiscal measures to support sectors that have been hit hardest by the trade war.
He said that if the labor market remains weak, the Bank of Canada could cut interest rates further modestly early next year, but there is no immediate need for that. The central bank will announce its next interest rate decision on Dec. 10.