The Bank of Canada lowered its benchmark interest rate today, trimming the overnight rate by a quarter of a percentage point to 2.5%. The Bank Rate now stands at 2.75%, with the deposit rate at 2.45%.
The central bank said the move was necessary to support growth as global trade tensions, weaker exports, and rising unemployment weigh on the Canadian economy.
Canada’s economy shrank by roughly 1.5% in the second quarter, a drop driven largely by a 27% fall in exports.
Many companies had rushed shipments earlier in the year to avoid U.S. tariffs, but trade slowed sharply over the summer. Business investment also pulled back, though consumer spending and housing activity remained steady.
The labour market has softened. Employment has declined for two consecutive months, with losses concentrated in trade-related industries.
The national unemployment rate reached 7.1% in August, its highest point since early 2023, while wage growth continued to ease.
Inflation remains close to target.
The annual consumer price index held at 1.9% in August, unchanged from July.
Core inflation measures are hovering around 3% but have lost momentum.
The federal government’s decision to drop most retaliatory tariffs on U.S. imports is expected to reduce some pressure on consumer prices in the months ahead.
Internationally, the economic backdrop has weakened.
U.S. business investment remains solid, but consumer spending has cooled and hiring has slowed.
Inflation in the U.S. has ticked higher as tariff costs filter through.
Growth in Europe has moderated, while in China, investment has slowed after a stronger first half of the year.
The Bank of Canada said the cut reflects the need to balance the risks of weaker growth against still-elevated inflation.
Policymakers will monitor the impact of trade disruptions, business investment, employment trends, and how consumer prices respond in the months ahead.
The next scheduled interest rate announcement is set for October 29, 2025, when the Bank will also release its quarterly Monetary Policy Report.
