The Bank of Canada has reduced its key lending rate to 2.25 percent, citing the escalating impact of the global trade war led by US President Donald Trump. This decision marks the second consecutive rate cut, following a quarter-point reduction in September. The move reflects the bank’s efforts to mitigate the effects of trade uncertainty on the Canadian economy.

Canada’s economy has shown signs of contraction, with a 1.6 percent decline in the second quarter, largely due to a drop in exports and weak business investment. The bank attributes this weakness to the uncertainty surrounding US trade policies, which have targeted specific industries such as autos, steel, aluminum, and lumber. As a result, the bank expects GDP growth to be weak in the second half of the year.

The US trade policies, characterized by their unpredictability, have been closely monitored by the Bank of Canada since Trump’s return to office. A recent example of this unpredictability is the surprise decision to end bilateral trade talks over an anti-tariff ad produced by the Ontario government. This move underscores the challenges faced by Canada in navigating the complexities of US trade actions.

The rate cut is aimed at supporting the Canadian economy, which has been affected by the trade tensions. The Bank of Canada’s decision is a response to the emerging trends in the global economy, where trade uncertainty has become a significant factor. As the global economic landscape continues to evolve, the bank’s move is seen as a proactive step to address the challenges posed by the trade war.

The implications of the rate cut will be closely watched, as the Canadian economy seeks to regain momentum in the face of trade uncertainty. The Bank of Canada’s decision is expected to have a ripple effect on the economy, influencing business investment, exports, and ultimately, GDP growth. As the trade war continues to unfold, the bank’s actions will be crucial in mitigating its impact on the Canadian economy.