At Wednesday's policy meeting, the Bank of Canada announced that it will lower its benchmark interest rate from 3% to 2.75% in response to the economic uncertainty brought about by the Trump administration's new round of tariff policies.

Central Bank Governor Tiff Macklem described the current trade conflict as a "new crisis" at a press conference, but he also emphasized that the pace of future interest rate cuts will be cautiously pushed forward.

Enterprises are facing many new costs that will ultimately be passed on to consumers. We cannot allow this round of price increases to trigger widespread and sustained inflation. "- Bank of Canada Governor Steve McClelland

Economists generally believe that the monetary policy of the Bank of Canada faces significant challenges in the context of trade conflicts. Compared to the significant interest rate cuts in 2020, this round of adjustment will not evolve into a radical easing cycle, but is more likely to be a small, gradual policy adjustment.

There will not be a situation of interest rate cuts this year. "- Claire Fan, Senior Economist at RBC Capital Markets

Although the Bank of Canada's interest rate cut is aimed at easing downward pressure on the economy, central bank officials are more concerned that inflation risks may limit further room for easing. Data shows that the CPI in January increased by 1.9% year-on-year, approaching the central bank's target of 2%.

The central bank stated that the cost increase caused by trade conflicts may be transmitted to the consumer end, thereby pushing up the overall price level. Therefore, the central bank will not significantly lower interest rates like during 2020, but will prioritize the stability of inflation expectations.

It is crucial to ensure that inflation expectations remain stable in the medium and long term, otherwise price increases will become more persistent. "- Steve McClelland

In addition, the central bank has released a rare consumer and business survey report, showing that the market has begun to anticipate further price increases in the future. This signal indicates that even if economic growth slows down, the central bank is unlikely to significantly cut interest rates to prevent inflation expectations from getting out of control.

In the minutes of the internal discussion meeting of the central bank, officials clearly stated that the role of monetary policy is limited in the context of trade conflicts. Due to the fact that interest rate cuts can only have an impact on overall demand, the government's fiscal measures may be more effective in providing targeted assistance to affected industries and workers.

Canadian federal and provincial governments may need to take on greater responsibility by supporting impacted industries through fiscal spending, subsidies, or tax policies to prevent the economy from falling into recession.

Compared to monetary policy, fiscal measures can more accurately support the most severely affected industries. "- Minutes of the Bank of Canada Policy Meeting

Editor's viewpoint:

The Bank of Canada's 25 basis point interest rate cut this time is mainly aimed at easing the economic uncertainty caused by Trump's tariff policies. However, as inflation risks still exist, the central bank will be more cautious in future policy choices to avoid price increases becoming long-term.

In addition, government fiscal policies may need to be further strengthened to support industries most severely affected by trade conflicts.