B.C.'s Finance Minister Brenda Bailey is among a chorus of voices cheering a Bank of Canada decision to cut a key interest rate in the face of threatened U.S. tariffs. But the move is also happening within an environment of uncertainty.
Bailey said government welcomes the BoC's decision to drop its policy rate to three per cent from 3.25 per cent. in its sixth consecutive cut.
“People in B.C. have been feeling the impact of inflation and high prices for a long time," Bailey said.
She added that her government hopes that the central bank will continue to ease interest rates in the face of uncertainty and threats from the United States to "impose unjustified tariffs" on Canada on Feb. 1.
"We are in a time of great economic instability and uncertainty, which we expect to continue throughout his presidency," she said.
This point also appeared in the statement from Bank of Canada Governor Tiff Macklem, who called U.S. trade policy a "major source" of uncertainty in pointing to many possible scenarios.
"We don’t know what new tariffs will be imposed, when or how long they will last," he said. "We don’t know the scope of retaliatory measures or what fiscal supports will be provided. And even when we know more about what is going to happen, it will still be difficult to be precise about the economic impacts because we have little experience with tariffs of the magnitude being proposed."
But he predicted that a "long-lasting and broad-based trade conflict would badly hurt economic activity in Canada," a point that also applies to B.C.
Bailey said these tariffs will be "catastrophic" for the provincial economy, its workers and its businesses. She pointed to three broad policy responses: retaliation; trade diversification and improving local economic conditions through faster permitting and more inter-provincial trade.
Meanwhile, the Canadian Mortgage Brokers Association, British Columbia also welcomed the cut, calling it a timely measure to provide financial relief to British Columbians, including mortgage holders and first-time homebuyers.
Rebecca Casey, CMBA-BC's president, said the cut is encouraging but also "reflects the precarious state of the economy and the need for further measures to protect Canadians." Like Bailey, Casey is calling for additional rate cuts.
“Tariff threats and broader economic pressures are fuelling uncertainty, and we believe additional rate cuts will be necessary to stabilize the housing market and ensure financial security for British Columbians,” Casey said.
But Macklem also warned against unreasonable expectations. A lengthy trade dispute could see the return of inflation on top of declining economic activity, the worst of all possible worlds.
"With inflation back around the (two per cent) target, we are better positioned to be a source of economic stability," he said. "However, with a single instrument — our policy interest rate — we can’t lean against weaker output and higher inflation at the same time."
