04:36 PM EST, 01/17/2025 (MT Newswires) -- Douglas Porter, Chief Economist at BMO Capital Markets, in his weekly 'Daily Points' column on Friday looked at where a shifting global economic backdrop, not least one that includes the prospect of a tariffs war, leave the Bank of Canada in terms of future interest rate moves.

To begin with, Porter noted that in stark contrast to widespread expectation that the Federal Reserve will pause rate cuts on January 29, the BoC is still mostly expected to trim again that day. Porter pointed out that no fewer than five BoC decision dates fall on the same day as the FOMC meetings this year; more times than the two have coincided over the past 20 years.

Porter said while the debate in the U.S. is all about how much inflation tariffs may cause, the only question in Canada is how much growth damage they will inflict. He noted the BoC seems poised to continue cutting despite: the recent 7% drop in the Canadian dollar to near 20-year lows; the widespread assumption that the Fed will pause; and a "robust" employment report for December, which even saw the jobless rate dip.

Porter also noted the BoC will cut despite more signs that the domestic economy is responding "with purpose" to prior rate cuts, including a 19% year over year rise in home sales last month, and a pick-up in mortgage borrowing trends.

According to Porter, Canada's own CPI report for December on Tuesday may provide "a bit of home-grown support" for rate cuts. He noted the GST holiday, which began mid-month, is expected to help clip headline inflation to 1.8%, more than one percentage point under the U.S. trend, while favorable base effects may also help shave the yearly core readings. "But, ultimately, the Bank's decision may come down to what unfolds on the tariff front," he said, adding: "We continue to believe that the correct response by the Bank to U.S. tariffs would be to cut early, and cut often. Any inflationary impulse from a weaker Canadian dollar and/or retaliatory moves will be swamped by the heavy-duty hit to growth."