Two days before its next policy announcement, the Bank of Canada faces a critical decision with no clear path forward. A Reuters survey of economists finds a slim majority—just over 60%—expect the central bank to hold its overnight rate at 2.75%, while 11 out of 29 forecast a 25-basis-point cut, underscoring the divide among analysts.
The uncertainty stems largely from the economic aftershocks of U.S. President Donald Trump’s tariff war, which has roiled financial markets, blurred global growth forecasts, and injected fresh volatility into trade-sensitive economies like Canada’s.
While Trump’s recent 90-day pause on reciprocal tariffs offered a measure of relief—excluding China—most analysts say it’s not enough to offset longer-term damage to investment confidence and trade flows.
“The door is certainly open for the bank to trim the policy rate by another 25 bps as a precautionary measure, a view we are leaning toward,” said Marc Ercolao, economist at Toronto-Dominion Bank. “That said, taking a pause is still a potential option.”
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Inflation vs Growth: A Policy Crossroads
The BoC’s calculus may be further complicated by March inflation data, which is set to be released a day before the rate decision. The consensus forecast is for 2.6% inflation, unchanged from February. But BMO Capital Markets Chief Economist Douglas Porter sees a higher print of 2.7%, potentially pushing Canadian inflation above U.S. levels—an uncommon dynamic over the past five years.
“Balancing the opposing forces of inflation and growth will keep the BoC on their toes in the coming months,” said Ercolao.
Complicating matters, Canada’s GDP forecasts have sharply deteriorated. The economy is now expected to grow just 1.2% in 2025, down from earlier projections of 1.6%, with a modest 1.1% pace forecast for 2026, according to the Reuters poll.
Markets Favor a Pause—for Now
Market sentiment appears aligned with a hold. Futures pricing shows a 32% probability of a rate cut, down from 40% last week, after Trump’s partial tariff retreat. Still, more than half of economists polled predict two additional rate cuts by Q3, potentially taking the overnight rate to 2.25% or even 2%, depending on inflationary pressures and external shocks.
The central bank had previously cut its policy rate in March, citing rising risks from Trump’s tariff threats. While those immediate threats have abated, the underlying uncertainty remains.
“How soon will anyone step up to build a plant in Canada to produce exports to the U.S., given that the U.S. has blatantly abrogated its existing free-trade USMCA deal?” asked Avery Shenfeld, Chief Economist at CIBC Capital Markets.
A Fragile Recovery, Tied to an Unreliable Partner
Even with 15 trade agreements signed over recent decades, Canada’s dependence on the U.S. has only deepened. Roughly 80% of Canadian exports still flow south, a vulnerability that has been laid bare by the Trump administration’s mercurial trade policy.
“Canada will end up more tied to the U.S. once the tariff dust settles,” noted CIBC’s Benjamin Tal.
Prime Minister Mark Carney echoed those concerns last week, citing “initial signs of slowing in the global economy,” and pointing to softening in Canada’s labor market as a key early signal.
“In the last week, there have been a lot of developments in U.S. tariff policy. It really marked a tightening in financial conditions,” Carney said.
What’s at Stake
With U.S. recession odds rising to 60%, and Canadian growth decelerating, the BoC’s next steps will shape the trajectory of a fragile economy. Whether policymakers move to stimulate growth or pause to reassess inflation trends, Wednesday’s decision will mark a defining moment in the Bank of Canada’s 2025 playbook.
