Desjardins Notes Bank of Canada "Looking To Be Both Humble and Nimble" on Tariff Uncertainty

01:36 PM EDT, 03/20/2025 (MT Newswires) -- Over at Desjardins, Royce Mendes in a quick take on Governor Macklem's speech on Thursday said the Bank of Canada is "looking to be both humble and nimble" as it navigates the challenges of the current trade war. He noted Macklem stated in a speech to a Calgary audience today that the central bank will not set monetary policy "for a specific economic outlook" because no one, including the Governing Council, knows what may happen with regards to tariffs. Instead, policymakers plan on employing a strategy that "works for different outcomes", Mendes noted.

As a result, according to Mendes, officials will be less forward looking than is typically the case. Mendes said: "Given that his speech opened with a nod to the recent strength in the economy and the fact that both measured inflation and inflation expectations have moved higher recently, an approach more focused on the contemporaneous environment would favour at least a brief pause in monetary easing."

Throughout the speech, Mendes noted, Macklem reminded those in the audience that the Bank of Canada will be guided by the 2% target for inflation. Macklem specifically said that there can be "no doubt" about the central bank's "commitment to low inflation". Mendes added: "That's in line with the hawkish pivot we have seen from the Bank of Canada in recent weeks and reinforces our call for policymakers to hold rates steady in April. In the near-term, we expect that markets will price in fewer cuts, but that's likely to be a temporary adjustment."

Towards the end of Macklem's prepared remarks, Mendes noted, Macklem suggested that a less forward looking approach to monetary policy could mean reacting more quickly if risks materialize. "The Governor was likely intentionally vague about whether he was referring more to upside risks to inflation or downside risks to growth. But our view is that the downside risks to growth will be more pervasive and will lead the Bank of Canada to cut rates down to a terminal rate of 1.75% later this year. In essence, the Bank of Canada's latest communications are very much in line with our view that officials remain hawkish in the near-term, but switch gears to a much more dovish approach later in the year."

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