Benchmark overnight lending rate lowered to 2.75% amid Trump’s tariffs.

The Bank of Canada slashed its benchmark overnight rate Wednesday by 25 basis points as US tariffs raised uncertainties and fears in global trade.

The key overnight lending rate now stands at 2.75%, its lowest since September 2022.

The interest rates of the bank rate and the deposit rate stand at 3% and 2.70%, respectively.

The bank stressed that the Canadian economy entered the year strong, with inflation slowing to the 2% target and robust GDP growth.

“However, heightened trade tensions and tariffs imposed by the US will likely slow the pace of economic activity and increase inflationary pressures in Canada,” it said. “The economic outlook continues to be subject to more-than-usual uncertainty because of the rapidly evolving policy landscape.”

It said the growth of Canada’s economy is expected to slow in the first quarter of 2025 due to the effect of the “trade conflict,” and recent surveys point to a sharp decline in consumer confidence and a slowdown in business spending as companies postpone or cancel investments.

The bank stressed that widespread uncertainty created by the ever-shifting threat of US tariffs is limiting consumers’ spending plans and businesses’ hiring and investment plans.

“Monetary policy cannot offset the impacts of a trade war. Governing Council will be carefully assessing the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs,” it added.

US President Trump pledged a one-month deferral on items that adhere to a 2018 trade pact after enacting 25% duties on the majority of Canadian and Mexican imports last week. He then threatened to impose significant new taxes on dairy and lumber products from Canada.

Early Wednesday, 25% tariffs on Canadian steel and aluminum went into force.

Canada, in the meantime, has retaliated with tariffs on US products, including $21 billion worth of steel and aluminum products, taking effect Thursday.