Volkswacht Bodensee - Canada central bank holds interest rate steady amid tariffs chaos

"The major shift in direction of US trade policy and the unpredictability of tariffs have increased uncertainty, diminished prospects for economic growth, and raised inflation expectations," the central bank said in a statement.

The bank painted a dire economic picture, including the worst-case scenario of a protracted trade war with the United States -- Canada's biggest trading partner -- triggering a recession and sending prices soaring.

It noted that after solid growth in late 2024 and inflation easing toward the bank's 2.0 percent target, financial markets are in turmoil, oil prices have dropped, and the Canadian dollar has appreciated as a result of broad US dollar weakness.

Tariff announcements and uncertainty have pulled down consumer and business confidence, leading to lower consumption and business spending, along with a decline in employment and slower hiring, the bank said.

In the short term, the bank said it expects prices to rise as a result of the trade conflict and supply disruptions.

But it said it would "proceed carefully" and continue to assess "downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs."

"Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war," it added. "What it can and must do is maintain price stability for Canadians."

R.Flueckiger--VB