The Bank of Canada lowered its target for the overnight rate by 25 basis points to 2.5 percent today, setting the Bank Rate at 2.75 percent and the deposit rate at 2.45 percent. This action follows three consecutive holds, as the central bank responds to mounting evidence of economic slowdown, persistent employment weakness, and subdued inflationary pressures.
The Bank cited Canada’s economy contracting by 1.6 percent in the second quarter, primarily due to a 27 percent plunge in exports as tariff-driven uncertainty hit trade-sensitive sectors as one of the primary reasons for the cut. Business investment followed suit, while consumption and housing activity showed resilience. Rising unemployment, with the unemployment rate climbing to 7.1 percent in August after job losses in trade-exposed industries, was also cited as a major factor.
The Bank also highlighted that inflation remains contained, with the consumer price index citing inflation of 1.9 percent in August, below economists’ expectations and the Bank’s midpoint target. Core inflation measures have steadied, and the recent removal of most Canadian retaliatory tariffs on U.S. goods is set to ease further pressures on prices.
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The Bank of Canada’s Governing Council cited the weaker outlook and diminished upside risks to inflation as key drivers for today’s rate move. Policymakers pledged a measured approach, closely tracking the impacts of trade disruptions, employment trends, and evolving inflation expectations.
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