Will the Bank of Canada cut interest rates this week?

“A close call.”

That’s the way economists at RBC describe the decision this week for the Bank of Canada on interest rates, ultimately landing on the side of yes, they will.

In a report dated April 11, economists Nathan Janzen and Abbey Xu said the Trump tariff decision could play a part in the April 16 decision.

“Wednesday’s interest rate decision for the Bank of Canada will be another close call for policymakers, but we expect they will ultimately opt to add another “insurance” 25 basis point cut in the face of escalating U.S. tariff risks,” the pair argued. “Minutes from the last BoC meeting largely confirmed that the central bank would have foregone a cut to the overnight rate in March if not for heightened trade risks. We continue to think that fiscal policy is better positioned to provide the kind of timely, targeted, and temporary support needed for the economy as needed than changes in interest rates.”

Janzen and Xu say the main factor in the decision is likely not the unknown of tariffs but the known fact that the Canadian economy might not be on solid footing.

“Our tracking of consumer spending has been more resilient than the plunge in consumer confidence measures in March alone would suggest,” they wrote. “But, business investment and hiring intentions have weakened considerably with employment plans falling below pandemic-era lows in the BoC’s Q1 Business Outlook Survey. About 32% of firms surveyed now expected a recession in the next 12 months, up from 15% in the previous quarter. March employment data reinforced these concerns with the job count falling and unemployment rising. And, housing markets have shown clear signs of slowing—reducing the odds that near-term interest rate hikes will lead to another round of surging house prices. Complicating the BoC’s decision is inflation has broadly surprised to the upside in recent months. We expect March’s headline inflation will hold at 2.6% year-over-year on Tuesday, matching February’s rate with lower gasoline prices in March offset by further unwinding of the GST/HST tax holiday that ended mid-February. Much of that increase outside of the drop in fuel costs is expected to show up in after-tax prices for restaurant meals.”