The Bank of Canada lowered its policy interest rate by a quarter point to 2.5 percent on Wednesday, returning to easing as evidence mounts that the economy is losing steam.
The move brings the benchmark to its lowest level since 2022 and marks the first cut since March.
In its statement, the Bank said the balance of risks has shifted toward weaker growth with less threat from underlying inflation.
Governor Tiff Macklem said in an opening statement that the decision reflected a careful reading of recent data.
“We lowered the policy interest rate by 25 basis points, bringing it to 2.5%,” Macklem said, adding that officials will keep assessing risks and be ready to respond as conditions evolve.
The Bank also set the Bank Rate at 2.75% and the deposit rate at 2.45%.
Tariffs, jobs and inflation tip the scales
The Bank pointed to a deteriorating backdrop at home and abroad. After holding up through earlier trade shocks, global growth is cooling.
Tariffs in the United States are weighing on cross-border demand, and Canadian exporters are feeling the strain.
At home, gross domestic product fell about 1.5 percent in the second quarter as exports slumped and business investment contracted.
The Bank said consumption and housing showed resilience, but weaker hiring and low population growth will likely restrain household spending in the months ahead.
Labor market figures have softened. Employment declined over the past two months and the jobless rate reached 7.1% in August, with losses concentrated in trade-sensitive industries and wage growth easing.
Those trends factored into the Governing Council’s judgment that policy should do more to support the expansion.
Inflation has cooled enough to give policymakers cover. Headline consumer prices rose 1.9 percent in August, the Bank said.
Preferred core measures have hovered around 3% in recent months, but the earlier upward momentum has faded, and a broader range of indicators suggests underlying inflation near 2.5%.
The federal government’s removal of most retaliatory tariffs on U.S. goods should also relieve some price pressure. With a weaker economy and less upside risk to inflation, officials concluded a cut was appropriate to better balance risks.
Wednesday’s reduction extends a pivot that began last year from the 5% peak reached in mid-2024.
After a series of steps lower through late 2024 and early 2025, the Bank had paused at 2.75 percent over the spring and summer.
The latest move takes the benchmark to 2.5%, underscoring how far policy has traveled as inflation has cooled and growth has faltered.
For households and businesses, a lower policy rate typically feeds through to borrowing costs on variable-rate mortgages, lines of credit and some business loans, though the speed and size of changes depend on lenders.
The Bank did not provide guidance on the next move, emphasizing instead that it is proceeding carefully and will watch how tariffs, exports and business investment interact with inflation dynamics.
The next rate decision is scheduled for October 29, when the central bank will also publish its Monetary Policy Report with updated forecasts.
Until then, investors will parse incoming data on jobs, prices and trade for clues on whether Wednesday’s cut becomes the start of a new leg lower or a one-off adjustment aimed at cushioning a slowing economy.
