On Wednesday, March 12, 2025, the Bank of Canada (BOC) is scheduled to announce the Overnight Rate at 5:45 PM GMT+4 (Dubai Time). A reduction of 25 basis points is anticipated, lowering the previous rate from 3.00% to a forecast of 2.75%. If the BOC implements the cut as expected, it will mark the seventh interest rate reduction since June 5, 2024. 

Major Factors that Could Impact the Bank of Canada Interest Rate Decision

Certain factors, such as trade tensions, inflation pressures, and employment, may significantly influence the BOC interest rate decision. 

Trade War Impact

Canada’s total exports increased in January to a record total of CAD 74.5 billion, following announcements from the U.S. about imposing tariffs on Canadian goods (Figure 1). With roughly 75% of Canada’s exports headed to the U.S., ongoing tariffs and strained relations have significantly affected economic confidence. U.S. President Donald Trump's new 25% tariffs on imports from Canada are now in effect. This could slow Gross Domestic Product (GDP) growth, negatively impacting economic activity in Canada.

Figure 1: Canada Exports, Feb 2024 – Jan 2025, Source: Trading Economics

Inflation vs Unemployment

The inflation rate remains relatively stable within the BOC’s 1-3% target. However, even though the latest unemployment rate, on February 7, 2025, was 6.6% (Figure 2), compared to a forecast of 6.8% and a previous 6.7% rate, it dropped to 6.6%, which remains high, indicating labor weakness. 

Figure 2: Canada Unemployment Rate, Mar 2024 – Feb 2025, Source: Trading Economics

What to Watch Out For

If the trade war’s impact is dominating, this could increase the probability of a rate cut or a dovish stance. If the BOC were to hold rates or hike, this could potentially slow an already fragile recovery. Moreover, inflation might be pushed above the target if the BOC were to ease rates.