Bank of Canada cuts interest rate to 2.5 per cent

The Bank of Canada reduced its target for the overnight rate by 25 basis points to 2.5 per cent, with the Bank Rate at 2.75 per cent and the deposit rate at 2.45 per cent.

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The Bank of Canada reduced its target for the overnight rate by 25 basis points to 2.5 per cent, with the Bank Rate at 2.75 per cent and the deposit rate at 2.45 per cent.

“Today we lowered the policy interest rate by 25 basis points to 2.5 per cent,” said Bank of Canada Governor Tiff Macklem on Wednesday. “Considerable uncertainty remains, but with the weaker economy and less outside risk to inflation, the governing council judged that a reduction in the policy rate was appropriate to better balance the risks going forward.”

According to the central bank, global economic growth appears to be slowing down after remaining resilient to sharply higher U.S. tariffs.

Canada’s GDP declined by about 1.6 per cent in the second quarter.

Exports dropped by 27 per cent over the same period after experiencing gains in the first quarter as companies rushed to move their product out ahead of tariffs.

“Tariffs are having a profound effect on several key sectors, including the auto, steel and aluminum industries,” said Macklem. “Chinese tariffs on canola oil, pork and seafood, new U.S. tariffs on copper and higher U.S. tariffs on softwood lumber will spread the direct impacts further.”

Business investment also saw a decline in the second quarter, while consumption and housing activity saw gains.

“Consumer Price Index inflation was 1.9 per cent in August, the same as at the time of the July Monetary Policy Report,” said the Bank of Canada in a press release. “Preferred measures of core inflation have been around 3 per cent in recent months, but on a monthly basis the upward momentum seen earlier this year has dissipated.”

According to Statistics Canada, “excluding gasoline, the CPI rose 2.4 per cent in August, after increasing 2.5 per cent in each of the previous three months.”

A broad range of indicators and metrics continue to suggest that underlying inflation is hovering at around 2.5 per cent.

The central bank noted that the Carney government’s recent removal of most retaliatory tariffs on imported American goods will result in less upward pressure on the prices of these goods in the future.

“At this rate decision, there was a clear consensus to lower the policy rate for the first time since March,” said Macklem. “We will continue to assess the impacts of tariffs and uncertainty on economic activity and inflation. We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”