Bank of Canada likely to hold rates at 2.75%, but some expect a cut

By Promit Mukherjee

OTTAWA (Reuters) – The Bank of Canada is narrowly expected to hold its key policy rate at 2.75% on Wednesday as U.S. President Donald Trump’s tariffs slowly trickle through the economy, hurting businesses and consumers.

But for the first time in the ten months since the BoC started its rate-cutting cycle the markets, economists and analysts are almost evenly undecided on the decision the bank will take.

Lack of certainty over Trump’s next tariff moves has some convinced the Bank will make an eighth consecutive cut.

“Risks have been evolving pretty significantly, week by week, sometimes hour by hour, or minute by minute,” said Nathan Janzen, Assistant Chief Economist at Royal Bank of Canada.

He expects the bank to cut rates “as an insurance” for a weak economy but said it could keep them unchanged.

Currency markets are now seeing the odds of a rate cut pause at 56%, down from over 60% earlier in the week. The bets eased after inflation data released on Tuesday showed prices surprisingly cooled in March.

A Reuters poll of economists conducted between April 7 and 11 showed that while the bank is expected to keep rates unchanged on Wednesday, it is likely to cut them twice more this year.

“We see the Bank holding its target policy rate at 2.75%, opting for a ‘wait-and-see’ approach amidst an uncertain backdrop,” economists Ethan Currie and Warren Lovely from the National Bank of Canada, wrote in a report.

However, they said this should not be construed as an end to the rate-cutting cycle as the bank would most probably opt for a cut in its June meeting.

The central bank has shrunk its benchmark rate by 225 basis points to 2.75% since June, with the last cut in March. Its rapid rate reduction cycle made it the only central bank amongst all major global economies to shrink rates at such a fast clip.

BoC Governor Tiff Macklem will announce the governing council’s decision at 9:45 a.m. ET (1345 GMT) on Wednesday. The bank will also release its quarterly monetary policy report.

(Reporting by Promit in Ottawa; Editing by Nia Williams)