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The Bank of Canada cut interest rates by 25 basis points to 2.75 per cent — the seventh consecutive reduction — as it finds itself grappling with uncertainty created by United States President Donald Trump’s tariff onslaught.

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Policymakers have now cut by 225 basis points after rates reached a multi-decade high of five per cent in July 2023.

Here’s where economists think policymakers go from here on interest rates.

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‘A Band-Aid’: CIBC

“A quarter-point rate cut from the Bank of Canada might only be a Band-Aid, but we don’t yet know the size of the economic wound that will be opened up by U.S. trade policy ahead,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a note.

The Bank of Canada likely would have held rates at three per cent at Wednesday’s meeting were it not for the economic chaos unleashed by the U.S. tariffs, he said. As it is, sliding consumer confidence and slowing business investment as well as the expectation that growth will slow in the second quarter have forced policymakers’ hands on rates.

Looking ahead, Shenfeld thinks growth, not inflation, will be the dominant economic theme. As such, he believes the central bank will cut rates two more times by June.

“That could be the trough if tariffs come down again, as we still hope will be the case,” he said.

Three more cuts — maybe: Capital Economics

The Bank of Canada warned that tariffs encourage inflation and so it needs to “guard against” that threat.

“This confirms that the bank is hesitant to commit to much more in the way of policy support and is a risk to our view that the bank will cut at each of the next three meetings,” Stephen Brown, deputy chief North America economist at Capital Economics Ltd., said in a note.

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Despite the many risks tariffs pose to the economy, Bank of Canada governor Tiff Macklem has said several times that monetary policy alone cannot neutralize the harm caused by tariffs.

Brown highlighted a line in the statement that said policymakers “will be carefully assessing the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.”

Inflation from demand tends to appear with a lag, while price increases from tariffs should make themselves felt in pretty short order, he said.

For the time being, Capital Economics is sticking with its forecast for three more cuts to bring interest rates to two per cent by July’s meeting.

Inflation ‘lip service’: Rosenberg Research

Economist David Rosenberg thinks the Bank of Canada paid “necessary lip service” to inflation worries in its statement.

Instead, the founder and president of Rosenberg Research & Associates Inc. said in a note that policymakers appear more focused on threats posed by tariffs to the economy, including the labour market and wage growth.

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The Bank of Canada also alluded to the effects of tariff uncertainty on equities and bond yields as markets are roiled by the number of proposals coming from the White House and how rapidly those plans shift.

Its remarks on economic soft spots, plus others on flagging consumer confidence and the sheer magnitude of the rise in “uncertainty,” have the central bank leaning more “dovish” for further rate cuts.

“What is more likely to happen with the trade war is that the price hikes we see will initially trigger declines in real personal incomes, which then paves the way for renewed disinflation,” Rosenberg said. “This leaves the door open for additional rate relief.”

‘Economic uncertainty prevailed’: Central 1

“While the data has leaned against a cut, economic uncertainty prevailed at this meeting,” Bryan Yu, chief economist at Central 1 Credit Union, said in a note, adding that the Bank of Canada emphasized economic risks over previous strong gross domestic product data.

“At the same time, it reiterated that there will be competing factors going forward from a trade war, including a weaker economy and upward inflation pressures,” he said.

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Yu thinks policymakers are suggesting there will be “limited cuts” on the horizon, given the Bank of Canada said it can’t balance out the impact of a trade war with rates.

“We expect further economic weakness to push the bank to reduce the policy rate to two per cent,” he said.

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