By Promit Mukherjee and David Ljunggren
OTTAWA (Reuters) -The Bank of Canada trimmed its key policy rate by 25 basis points on Wednesday to 2.75% and raised concerns about inflationary pressures and weaker growth stemming from trade uncertainty and President Donald Trump's tariffs.
The bank also said it would "proceed carefully with any further changes" to rates given the need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.
The bank's stance, which some economists said could be a signal that rates will not fall further, comes after months of inflation sitting at or around its 2% target.
"We're focused on weighing those downward pressures and those upward pressures. Our job is to maintain price stability, and that's what we're focused on," Governor Tiff Macklem told a press conference.
But he declined to give any forward guidance in terms of where rates might go.
The cut marked the seventh consecutive time the central bank has eased monetary policy, shrinking the key rate by a total of 225 basis points in a space of nine months and making it one of the most aggressive central banks globally.
"We ended 2024 on a solid economic footing. But we're now facing a new crisis," he said in opening remarks to a press conference.
Trump's stop-start tariff policies and threats to a wide range of Canadian products have alarmed companies, shaken consumer confidence and hurt business investment.
Trump imposed a 25% tariff on all steel and aluminum products on Wednesday and Canada said it will impose C$29.8 billion ($20.68 billion) in retaliatory tariffs on the United States effective Thursday.
The bank said a protracted tariff war would lead to poor GDP growth and high prices, a challenging mix that makes it tough to decide on whether to hike or cut rates.
The rate-setting Governing Council will focus on assessing the timing and strength of both the downward pressure on inflation from a weaker economy and the upward pressure from higher costs, Macklem said.
The trade conflict would slow first-quarter GDP and could possibly disrupt the recovery in the jobs market, he said, adding that the fear of the impact of tariffs on prices had already pushed up short-term inflation expectations.
Inflation is expected to be around 2.5% in March, up from 1.9% in January, as a short-term sales-tax break ends.
The Canadian dollar extended gains after the decision and was trading stronger by 0.20% to 1.4403 to the U.S. dollar, or 69.43 U.S. cents. Yields on two-year government bonds dropped by 0.8 basis points to 2.521%.