BMO, RBC say interest rates could fall harder and faster with tariffs in play
Two of Canada’s largest banks say interest rates could fall faster and ultimately end up lower than previously predicted, as the consequences of a trade war with the U.S. are set to ripple through the Canadian economy.
U.S. President Donald Trump’s executive order imposing a 25 per cent tariff on most Canadian imports, with a carveout for energy products that will be taxed at 10 per cent, came into effect as of 12:01 EST Tuesday.
It triggered chaos in global financial markets and caused Bank of Montreal to revise its economic and interest rate forecast, saying it expects at least twice as many interest rate cuts from the Bank of Canada this year compared to previous estimates.
“We now look for the quarter-point pace to continue in each of the next four meetings until July, taking the rate to two per cent,” wrote Douglas Porter, the bank’s chief economist and managing director of economics, in a BMO Economics note published Tuesday.
“The net risk is that we eventually go even lower, if the (Bank of Canada) is comfortable with the prevailing inflation backdrop later this year.”
