The Bank of Canada has trimmed its key policy rate by 25 basis points to 2.75 percent and raised concerns about inflationary pressures and weaker growth stemming from trade uncertainty and President Donald Trump’s tariffs.

The bank on Wednesday also said it would “proceed carefully with any further changes” to rates given the need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.

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The bank’s stance, which some economists said could be a signal that rates will not fall further, comes after months of inflation sitting at or around its 2 percent target.

“We’re focused on weighing those downward pressures and those upward pressures. Our job is to maintain price stability, and that’s what we’re focused on,” Governor Tiff Macklem told a news conference.

But he declined to give any forward guidance in terms of where rates might go.

The cut marked the seventh consecutive time the central bank has eased monetary policy, shrinking the key rate by a total of 225 basis points in a space of nine months and making it one of the most aggressive central banks globally.

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“We ended 2024 on a solid economic footing. But we’re now facing a new crisis,” he said in opening remarks to a news conference.

Trump’s stop-start tariff policies and threats to a wide range of Canadian products have alarmed companies, shaken consumer confidence and hurt business investment.

Trump imposed a 25 percent tariff on all steel and aluminium products on Wednesday and Canada said it will impose 29.8 billion Canadian dollars ($20.68bn) in retaliatory tariffs on the US effective Thursday.

The bank said a protracted tariff war would lead to poor GDP growth and high prices, a challenging mix that makes it tough to decide on whether to raise or cut rates.

The rate-setting Governing Council will focus on assessing the timing and strength of both the downward pressure on inflation from a weaker economy and the upward pressure from higher costs, Macklem said.

The trade conflict would slow first-quarter GDP and could possibly disrupt the recovery in the jobs market, he said, adding that the fear of the impact of tariffs on prices had already pushed up short-term inflation expectations.

Inflation is expected to be approximately 2.5 percent in March, up from 1.9 percent in January, as a short-term sales-tax break ends.

The Canadian dollar extended gains after the decision and was trading stronger by 0.2 percent to 1.44 to the US dollar.

Currency markets are betting that the chances of another rate cut of 25 basis points at the bank’s next announcement on April 16 are near 45 percent.

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“The focus on rising inflation expectations in today’s release is somewhat hawkish,” said Royce Mendes, head of macro strategy for Desjardins Group.

Slowdown

The US is Canada’s biggest trading partner and takes almost 75 percent of all Canadian exports.

A separate special bank survey of businesses and households conducted from late January until the end of February showed that many households were concerned about job security, especially in sectors exposed to US trade.

The tariff threat has forced businesses to lower their sales outlook.

Some businesses are finding it hard to get credit, and a weaker currency has made imports expensive, the survey pointed out. This means that firms are pulling back their hiring and investment plans, it said.

The recent shift in consumer and business intentions is expected to translate into a marked slowing in domestic demand in the first quarter, Macklem said in his remarks.

“Monetary policy cannot offset the impacts of a trade war. What it can and must do is ensure that higher prices do not lead to ongoing inflation,” he said.