Bank of Canada expected to hold interest rates steady, amid daunting set of economic risks

Tensions are high in the Canada-U.S. trade war.

At the Bank of Canada’s last meeting in January, Governor Tiff Macklem declared “the days of open rules-based trade with the United States are over.” Echoing Prime Minister Mark Carney’s speech at the World Economic Forum in Davos eight days earlier, he went on to call out “structural damage caused by tariffs” impacting Canada’s economy.

Recent weeks have not yielded much unity.

Last Thursday, U.S. Trade Representative Jamieson Greer named Canada among the countries now facing a new expanded American trade investigation related to forced labour.

This followed a widely expected snag for the Trump administration’s global trade war on Feb. 20, when the U.S. Supreme Court ruled 6–3 against the so-called “Liberation Day” tariffs. In this decision, lawmakers also struck down fentanyl-related duties on Canada, Mexico and China.

The White House responded with a fresh 10 per cent worldwide tariff. Those levies do not apply to goods compliant with the Canada-U.S.-Mexico Agreement on trade (CUSMA). They’re also in addition to the Trump administration’s sector-specific tariffs on industries including steel, aluminum, automobiles, and cabinetry.

RBC assistant chief economist Nathan Janzen says, so far, the Trump team’s tariff tweaks have been no big deal for Ottawa.

“The new measures don’t significantly change the international trade backdrop for Canada,” he wrote last month.

How this bodes for the recently commenced renegotiation of CUSMA remains to be seen. That uncertainty is a major reason why most economists see the Bank of Canada holding its policy rate in place today.

Of course, reasons for uncertainty are plentiful these days.

“The conflict in Iran is a significant upside risk to price growth,” Desjardins economist LJ Valencia wrote on Monday.

“That said, the upcoming CUSMA review remains a significant downside risk to the overall outlook. Given the uncertain and offsetting potential impacts on inflation, we believe that the Bank is likely to remain on the sidelines for the foreseeable future.”

Read more about what this buffet of risks means for Canada’s real estate and mortgage markets. Yahoo Finance Canada spoke to top economists and experts.