Bank of Canada cuts key interest rate to 2.25 per cent

The Bank of Canada announced it would be lowering its key interest rate to 2.25 per cent, while the bank rate will sit at 2.5 per cent and the deposit rate VERB at 2.20 per cent.

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The Bank of Canada announced it would be lowering its key interest rate to 2.25 per cent, while the bank rate will sit at 2.5 per cent and the deposit rate VERB at 2.20 per cent.

However, Bank of Canada Governor, Tiff Macklem, warned that the rate cut won’t be enough to ease the economic damage of U.S. tariffs.

“For many months, we have been stressing that monetary policy cannot undo the damage caused by tariffs,” said Macklem on Wednesday. “Increased trade friction with the United States means our economy will work less efficiently, with higher costs and less income. Monetary policy can help the economy adjust as long as inflation is well-controlled, but it cannot restore the economy to its pre-tariff path.”

Macklem went on to say that the Bank of Canada is “prepared to respond” if and when Canada’s fiscal outlook changes.

“Because US trade policy remains unpredictable and uncertainty is still higher than normal, this projection is subject to a wider-than-usual range of risks,” wrote the central bank in a press release. “While the global economy has been resilient to the historic rise in US tariffs, the impact is becoming more evident. Trade relationships are being reconfigured and ongoing trade tensions are dampening investment in many countries.”

The bank also released its Monetary Policy Report on Wednesday, which projects the global economy will slow from about 3.75 per cent this year to about 3 per cent in 2026 and 2027.

The report warned that the U.S. trade conflict has been “fundamentally reshaping” Canada’s economy, which “contracted by 1.6 per cent in the second quarter, reflecting a drop in exports and weak business investment amid heightened uncertainty.

Additionally, it’s projecting weak GDP growth in the second half of the year, adding that what growth occurs will be from “rising consumer and government spending and residential investment”

In time, exports and business investment are expected to pick up again.

“Canada’s labour market remains soft. Employment gains in September followed two months of sizeable losses. Job losses continue to build in trade-sensitive sectors and hiring has been weak across the economy,” it said.

“The unemployment rate remained at 7.1 per cent in September and wage growth has slowed. Slower population growth means fewer new jobs are needed to keep the employment rate steady.”

The central bank is projecting Canada’s GDP will grow by 1.2 per cent this year, 1.1 per cent in 2026 and 1.6 per cent in 2027.

The latest report marks a more negative outlook than what it had previously projected.

“Growth in gross domestic product is approximately 0.7 percentage points lower in both 2025 and 2026 than in the January Report. After historical revisions are taken into account, the level of Canadian GDP is projected to be 1.5 per cent lower by the end of 2026,” it said.

“Roughly half of the downward revision relative to the January Report reflects the negative impact of tariffs and uncertainty on potential output. The remainder reflects weaker demand conditions, mainly caused by the negative effects of US trade policies.”

Macklem added that what was “most concerning” about Canada’s latest fiscal outlook, was that if nothing changes, “our standard of living as a country, as Canadians, is going to be lower than it otherwise would have been.”