Bank of Canada Cuts Policy Rate to 2.5%
On Wednesday, September 17, 2025, the Bank of Canada lowered its target for the overnight lending rate to 2.5%, marking the first rate cut since March of this year.
The decision comes amidst concerns surrounding a slower pace of growth in the global economy and against the backdrop of U.S. tariffs, alongside broader economic uncertainties. An uptick in inflation and lower employment gains have contributed to a slowdown in the U.S. economy. Europe’s growth prospects have been hampered due to U.S. tariff related trade setbacks, while growth in China has softened amidst weakening investment.
The Bank reported that the Canadian economy contracted by 1.6% in Q2 primarily due to tariff and trade uncertainties, which contributed to a 27% decline in exports and a falloff in business investment.
Stronger consumption and housing activity was offsetting these impacts. That said, the Bank anticipates slower population growth and a weaker labour market to pose a drag on consumer spending in the coming months.
Recent data has shown a decline in employment with job losses being mostly concentrated in trade-sensitive sectors. The unemployment rate increasing to 7.1% and wage growth easing is a result of these impacts, the Bank added.
Consumer prices increased by 1.9% in August, the same as July. The Bank noted that alternative measures of core inflation suggest that underlying inflation is running around 2.5%, adding that the recent decision by the federal government to roll back most of the retaliatory tariffs on U.S. imports will lead to a further easing of inflationary pressures.
The Bank mentioned it will continue to monitor developments surrounding the shifts in trade policy and how inflation expectations evolve. Most importantly, adding that it will continue to support economic growth while ensuring inflation remains under control.
The Bank of Canada will make its next scheduled interest rate announcement on October 29, 2025. The Bank’s October Monetary Policy Report will be released at the same time.