Posthaste: Bank of Canada expected to cut interest rates as tariff threat looms

financialpost.com:

The Bank of Canada is heading into decision day next week with the country consumed by the threat of a trade battle with the United States.

Will it make a difference? Some economists think so.

Newly elected U.S. President Donald Trump has threatened to impose a 25-per-cent tariff on all goods from Canada. With that potential damage hanging over the economy, some argue the central bank will once again cut interest rates, even though signs of growth and pressures on core inflation would justify a pause.

“With the threat of tariffs looming large, we expect the governing council to opt for a 25-basis-point interest rate cut, said Thomas Ryan, North America economist for Capital Economics.

Trade trouble has escalated just as growth was getting back on track in Canada. Gross domestic product data for October and the early estimate for November point to fourth-quarter growth rising to 2 per cent, in line with the Bank of Canada’s forecast in the October monetary policy report, said Ryan.

Other encouraging signs were the 91,000 jobs the economy gained in December, blowing past expectations, and a moderate uptick in manufacturing sales.

Then there is the sticky point of inflation. Though the inflation rate slowed to 1.8 per cent in December this was mainly because of the federal government’s GST/HST holiday, which the Bank of Canada had already said it would “look through” when judging inflation trends.

If you took that tax break away, the inflation rate would be 2.3 per cent. Also measures of core inflation were a bit hot for comfort with the three-month annualized rate at 3.5 per cent, said Ryan.

However, “the elephant in the room” when the Bank of Canada makes its decision Wednesday will be the new president south of the