by Promit Mukherjee and David Ljunggren

OTTAWA (Reuters) – The Bank of Canada (BoC) lowered its key interest rate by 50 basis points to 3.25% on Wednesday and suggested future cuts would be more gradual.

This announcement represents a change in tone from previous messages that continued easing was needed to support growth.

The Governor of the Bank of Canada, Tiff Macklem, also stressed that the tariffs envisaged by the next American administration, under the mandate of President-elect Donald Trump, represented “a major new uncertainty”.

The 50 basis point rate reduction, although widely anticipated by consensus, is the first of this magnitude since the COVID-19 pandemic.

“With the policy rate now significantly lower, we expect a more gradual approach to monetary policy if the economy generally develops as expected,” Tiff Macklem said at the press conference following the central bank’s decisions.

The bank will assess the need for further cuts decision by decision, he said, noting that it is no longer necessary to remain in restrictive territory when it comes to steering monetary policy.

The key rate is currently at the upper end of the bank’s so-called “neutral” range, which is considered the range within which rates are just high enough not to restrict economic growth, but not to not stimulate either.

Inflation is currently at 2%, a threshold in line with the bank’s medium-term objective. Tiff Macklem reiterated that he wants to see economic growth accelerate.

The Canadian economy grew at an annualized rate of just 1% in the third quarter, which is lower than the Bank of Canada’s forecasts. The central bank noted that fourth-quarter growth could be weaker than expected. The BoC also highlighted that the projected drop in migrant numbers suggested that growth in 2025 could also be lower than forecast.

Donald Trump has promised to impose 25% tariffs on all Canadian exports unless Ottawa takes steps to tighten controls on migrants at its border, which Tiff Macklem says will darken the economic outlook .

“This is a major new uncertainty,” he said.

In addition to analyzing the impact of a tightening on immigration, the bank will also have to take into account a temporary refund of VAT and the aid programs envisaged by the government.

Tiff Macklem said the bank would look at temporary effects and focus on underlying trends to guide monetary policy decisions.

Including the new rate cut, the BoC in total reduced its benchmark borrowing costs by 175 basis points in the space of six months, making it the only major central bank to have lowered the rent of money at such a rapid rate.

( Claude Chendjou, edited by Kate Entringer)

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