Toronto 
The Bank of Canada has lowered its benchmark interest rate by 25 basis points to 2.5%, citing weaker growth and reduced inflationary pressures. The Bank Rate now stands at 2.75%, while the deposit rate is 2.45%.
Credit: Bank of Canada
Key Points from the Announcement
- Canada’s GDP contracted by 1.6% in the second quarter, with exports dropping 27% after early-year gains.
- Employment has declined for two consecutive months, pushing the unemployment rate to 7.1% in August. Job losses have been concentrated in trade-sensitive sectors such as autos, steel, and aluminum.
- Business investment fell in the second quarter, with companies citing trade policy uncertainty as a reason for delaying projects.
- Inflation in August was 1.9%, with core inflation averaging 2.5%. Excluding taxes, inflation stood at 2.4%.
- The federal government’s removal of most retaliatory tariffs on U.S. imports is expected to ease some upward price pressure.
- Consumption and housing activity showed strength despite broader economic weakness.
Internationally, growth in the United States, euro area, and China has slowed. U.S. inflation has increased in recent months, while Canadian exports and investment have been hit by tariffs and shifting trade relationships.
Tiff Macklem, Governor of the Bank of Canada, said the decision reflects three key developments:
“First, Canada’s labour market has softened further. Second, although there are still some mixed signals, on balance, recent data suggest the upward pressures on underlying inflation have diminished. Third, with the removal of most retaliatory tariffs by Canada, there is less upside risk to future inflation.”
Macklem added that “with a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks going forward.”
The Governing Council emphasized continued uncertainty tied to trade disputes and supply chain disruptions. The Bank will closely monitor the impact on exports, investment, and household spending, as well as how costs are passed on to consumers.
The next scheduled interest rate announcement is set for October 29, 2025, alongside the release of the Bank’s Monetary Policy Report.
