Trump's threat of tariffs could cause interest rates to fall further in 2025,

Trump's threat  of tariffs could  cause interest rates  to fall further in 2025, economists predict
After five  consecutive cuts, many Canadian economists predict the Bank of Canada will continue  to cut its key rate next  year, to  2% by the summer.
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After five  consecutive interest rate cuts in 2024, economists say the Bank of Canada  should continue to  cut rates in  2025.
But how much?  Perhaps it depends on how much you  trust Donald J.  Trump.
The U.S. president-elect's threat to impose a  25% tariff on all Canadian imports would be a devastating blow to an  already struggling Canadian economy if he  carries out his threat. And that could  encourage the bank to  continue its  rate-cutting campaign to  revive the  economy.
"Trade wars are bad for open economies that  rely on trade," says Shaun Osborne, currency strategist at Scotiabank. "And  we are part of  that." »
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The Bank of Canada's key  lending rate  has been cut five times in 2024, from  5% to its current  level of 3.25%.
The bank raised interest rates  ten times between March 2022 and last summer in  an attempt to  bring inflation  back to its  2% target. Inflation peaked at  8.1% in June  2022 when the Canadian economy  reopened after COVID restrictions. In November, Canada's annual  inflation rate was  1.9%, just below the middle of the bank's  1% to  3% target  range.
The theory is that by making  borrowing more  expensive, consumers and businesses will spend less,  which will lower prices and  slow the  economy.
Now that the economy  is slowing and inflation has  largely fallen, the bank is taking the  opposite approach, trying to  boost growth by cutting  rates.
The bank  has gone through its last two rate cuts,  cutting by 50 basis points —  half a percentage point — twice in a row.

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