07:31 AM EST, 01/23/2025 (MT Newswires) -- The macroeconomic arguments for the Bank of Canada to cut by 25bps next Wednesday and down to an accommodative level of 2% in 2025 is clear -- the inability of growth to accelerate to a sustained above-trend rate resulting in downside inflation risks, said RBC.

The harder part of the BoC call is the timing and magnitude of cuts, which aside from the general ebb and flow of domestic data, might be primarily influenced by the size and duration of any United States trade tariffs and Canadian countermeasures, noted the bank.

The start of the second Donald Trump Administration in the U.S. hasn't meant immediate tariffs on Canada, but the risk of tariffs remains very present, pointed out RBC.

The growth implications of tariffs are decidedly negative -- recent Peterson Institute for International Economics and BoC estimates from 2019 paint a consistent picture -- with a 25% across-the-board U.S. tariffs and equivalent Canada retaliation reducing the level of gross domestic product by around 6% over a three-year period.

The length of time enacted will be important as well, especially given RBC sees them as more of a negotiating tactic.