The Governing Council of the Bank of Canada felt that a prolonged commercial conflict with the United States would permanently reduce the level of national GDP, the minutes of a policy decision meeting were shown on Wednesday.
The Central Bank cut its key policy rate in 25 basic points to three percent on January 29, its sixth consecutive reduction, but cited the risks to the economy if the president of the United States, Donald Trump all imports of Canada .
Trump agreed last week to stop those rates on almost all imports of goods for a month. But on Sunday, he said he would impose a 25 percent rate to all imports of steel and aluminum.
“It was clear that a prolonged commercial conflict would lead to a decrease in economic activity,” the minutes said.
“The members of the Governing Council also pointed out that the adverse impact on the GDP level would be permanent, and the growth of GDP would be reduced until the Canadian economy fits tariffs.”
Threat of predicted tariffs
Canada, who sends almost 75 percent of all its exports of goods and services to the US.
Consumption prices in Canada have been around the midpoint of the target range of one to three percent of the bank for almost six months, but the economy is slow, which causes rapid rates cuts.
The decision to reduce rates by 25 basic points was influenced by the threat and uncertainty of tariffs, as well as the desire to support growth, the minutes said.
The Boc last month said that the constant threat of tariffs was cloudying their forecasts.
“The members acknowledged that it was impossible to predict what would happen with the United States commercial policy,” said the summary.
The team of six members, who will expand to seven members in March, also pointed out that a commercial conflict would reduce income in Canada, would interrupt the supply chain, the Canadian dollar would be stirred and further weaken.
Anecdotal evidence showed that some companies in Canada were already evaluating the movements to the United States, and a tariff war could stimulate capital flight and damage Canadian competitiveness, the minutes said.
The Council will continue to monitor the impact of tariffs on the economy in real time, paying more attention to supply chains and links between the sectors.
