The Bank of Canada's Governing Council convened from March 7, 2025, to decide on the monetary policy leading to the policy decision on March 12, 2025. Presided over by Governor Tiff Macklem and attended by Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, and Rhys Mendes, the council deliberated on both domestic and international economic conditions.
Initially, members discussed the economic landscape in the United States, noting economic growth slowed to 2.3% in late 2024, driven by decreased business investment despite strong consumer spending. Officials also noted the effects of U.S. policy announcements on household sentiment and stagnant progress on inflation, with the personal consumption expenditures price index remaining stable.
In Europe, modest growth was reported with new announcements in Germany expected to boost the economy over time. China's growth strengthened to 6.6% in late 2024 due to government policies, though U.S. tariffs were anticipated to impact China's export growth going into 2025. Financial conditions eased with declining bond yields and stable equity prices in light of slower growth expectations.
Discussion turned to Canada's economic condition, which began 2025 on stable ground. With GDP growth of 2.6% in late 2024, largely driven by consumer spending and exports, the Canadian economy mirrored its robust position. Unemployment sustained at 6.6%, while wage growth moderated. Predictions indicated that tariffs and trade tensions might impact Canada's labor market recovery negatively.
"The impacts of trade tensions and pervasive uncertainty on Canada-US trade relationships warranted significant consideration," council members remarked, addressing trade-related issues and their repercussions on confidence. Canadian exports and imports in early 2025 are believed to partially offset weaker domestic demand projected to decline over proceeding quarters.
Inflation held close to the Bank's target of 2%, influenced by furniture and home shelter prices, but members foresaw potential upward inflation pressures from weaker domestic demand and new tariffs. Input cost increases due to tariffs were under review.
Discussion highlighted whether to maintain or reduce the policy interest rate, as robust economic growth established a stronger-than-expected footing. Given the uncertainties enveloping the economic outlook, "it would not be appropriate to provide guidance on the future path for the policy interest rate." Ultimately, "Governing Council decided to reduce the policy interest rate by 25 basis points to 2.75%," intending to aid Canadians amid uncertainties over tariffs.
Members acknowledged inflation threats might arise from retaliatory tariffs, agreeing to monitor developments closely and exert monetary policy to preclude generalized inflation from initial pricing hikes.