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Bank of Canada meeting minutes: Tariff threats impact confidence, forcing the central bank to decide on a rate cut in January.
Gelonghui, February 13 | The Bank of Canada released the meeting minutes of the rate cut decision on January 29: (The tariff threats issued by US President Trump have) impacted confidence, forcing the central bank to decide on a rate cut in January. The central bank expects that the rate cut will support growth and achieve a balance of inflation risks. The trade war may disrupt supply chains and fuel inflation. Tariffs could lead to a depreciation of the Canadian dollar in the future. The (US-Canada) trade conflict may weaken energy demand and Canada's (trade) revenue. Capital outflows could worsen Canada's competitiveness. If uncertainty persists in the long term, it will undermine Canada's business investment.
Bank of Canada: The new trade war may cause long-term damage to economic growth.
The minutes from the Bank of Canada's policy meeting show that the management committee believes the long-term trade conflict with the USA will permanently reduce the domestic economic growth level. The central bank cut the key policy interest rate by 25 basis points to 3% at the end of January, marking the sixth consecutive rate cut, but indicated that if President Trump continues to threaten tariffs on all products imported from Canada, it will pose risks to the economy. Nearly 75% of Canada's commodities and services are exported to the USA, which has made it clear that it will take retaliatory measures, and the central bank stated that this could lead to rising inflation.
BoC Meeting Minutes Show Canadian Policymakers Are Awaiting Signs of Tariff Inflation
Canadian Dollar Could Fall If BOC Signals Economic Concerns -- Market Talk
USD/CAD Is Trading at the Lower End of the 1.4260-1.4800 Range – BBH
The central bank net withdrew 139 billion yuan today, and the liquidity situation is hard to describe as loose. The market expects that in February, regulation may increase the open market reverse repo operations to supplement liquidity.
① Due to the continuous large-scale net withdrawal of funds by the central bank after the holiday, the overall market liquidity remains relatively tight, which deviates from market expectations; ② In February, government deposits may freeze excess reserves of around 700 billion yuan. Considering the comprehensive impact of MLF and the maturity of reverse repos, the liquidity gap in February may be around 700 billion yuan. It is expected that the central bank will increase reverse repos to supplement medium- and long-term liquidity.