08:49 AM EST, 02/03/2025 (MT Newswires) -- Canada not matching with dollar-for-dollar United States tariffs lessens the inflation risk of Canadian tariffs and Canadian dollar (CAD or loonie) depreciation and makes a Bank of Canada rate cut -- perhaps an upsized one -- more likely, said Scotiabank.

The Canadian government said its retaliation to U.S. tariffs would be dollar for dollar but that's not what it has done, noted the bank. "Not even close."

However, as long as markets are functioning, which they likely will, then wait, advised Scotiabank. It doesn't see emergency pressure at this point to contemplate a BoC meeting move between planned meetings.

CAD and market rates can do their work at first. It's a risk but Scotiabank thinsk there is a very high bar for going inter-meeting.

One reason is that the BoC will want to see the next steps and evaluate the longevity of the shock. Who knows exactly where this is going, asked the bank. The players are far "too erratic."

Another reason is that tariffs will have slower lagging effects than at other times when the crisis was instant in financial markets or with complete shutdowns, added Scotiabank. Monitor this in terms of industry guidance on specific sectors.

Another reason is to evaluate early evidence on the supply shock, pointed out the bank.

What also matters is the fiscal response that is pending. Scotiabank can see coordinated announcements by the Canadian federal government and provinces and BoC again, like early in the pandemic. That's possible soon, but it can't pass until after March 24 unless parliamentary prorogation is temporarily suspended. So wait to coordinate.

The key question is how the rest of the curve responds, added the bank. Yields move lower in the short term, but if Canada is heaping on fiscal stimulus amid supply chain shocks that may include plant closures and CAD is unmoored then inflation risk further out it repeats the pandemic and then the BoC is whipsawed again, according to Scotiabank.