07:34 AM EDT, 03/12/2025 (MT Newswires) -- The Bank of Canada will make its policy announcement at 9:45 a.m. ET Wednesday, with a 25bps rate cut to 2.75% widely expected, said Bank of Montreal (BMO).

Following Tuesday's United States tariff ramp-up on steel and aluminum, there was some chatter of a potentially larger move, but policymakers have stressed that they'll be balancing growth and inflation impacts, notes the bank. Indeed, Governor Tiff Macklem noted that monetary policy cannot simultaneously fight lower growth and higher inflation.

That balance suggests the BoC's response to tariffs will be measured, stated BMO. In addition, there's extreme uncertainty on how long this tariff tiff will last. The BoC doesn't want to get too far ahead of things only to backtrack.

The domestic economy was showing signs of life into year-end, with Q4 gross domestic product growth coming in well above expected. Rate cuts have sparked a pick-up in car buying and home buying, two of the more rate-sensitive sectors, pointed out the bank. There's uncertainty around how much momentum persisted into 2025, as the sales tax holiday is working through the data.

The inflation backdrop isn't screaming for aggressive rate cuts either. Headline inflation is being held down by the tax holiday --the rebound will start in next week's February print. Core inflation has remained sticky, though the BoC has downplayed inflation worries. Still, upside inflation risks are worth keeping an eye on, added BMO.

The policy statement will be followed by a press conference at 10:30 a.m., where Governor Macklem and Senior Deputy Governor Carolyn Rogers will outline the BoC's decision.

In the meantime, the tariff situation continues to evolve in what would be comical fashion if it weren't real life, in the bank's view. Effective Wednesday, the U.S. will apply 25% tariffs on all aluminum and steel imports. Since the 50% on Canadian shipments wasn't officially put in place, it looks like Canada will be "mercifully" spared a worse fate than everyone else in the world.

The latter came after Ontario suspended 25% electricity export tariffs, with provincial Premier Doug Ford agreeing to meet Commerce Secretary Howard Lutnick on Thursday. This headline volatility and broader trade/tariff war isn't going to end any time soon, according to BMO.

The Canadian dollar (CAD or loonie) is little changed to start Wednesday following a challenging few days, said the bank. Unfortunately, the backdrop isn't likely to turn friendly for the loonie for some time.