Ottawa- The Bank of Canada has lowered its benchmark overnight interest rate by 25 basis points to 2.5%, citing a weaker domestic economy and ongoing global trade disruptions. The Bank Rate now stands at 2.75%, while the deposit rate is set at 2.45%.
Global economic growth is showing signs of strain after demonstrating resilience to sharply higher U.S. tariffs and trade uncertainty earlier this year. In the United States, business investment has remained firm, but consumer caution and slowing job gains are weighing on momentum. Inflation south of the border has picked up, with companies passing tariff costs onto consumers. Meanwhile, growth in the eurozone has moderated under trade pressures, and China’s economy is softening as investment slows. Oil prices remain near levels projected in the Bank’s July Monetary Policy Report, while financial markets have eased with higher equity prices and lower bond yields. The Canadian dollar has held steady against its U.S. counterpart.
At home, Canada’s economy contracted by about 1.5% in the second quarter as exports plunged 27%—a reversal from earlier gains driven by firms rushing to ship goods ahead of tariffs. Business investment also declined, though consumer spending and housing activity grew at a healthy pace. Looking ahead, slow population growth and a weakening labour market are expected to weigh on household demand.
The labour market has softened in recent months, with job losses concentrated in trade-sensitive industries. The unemployment rate rose to 7.1% in August, its highest level since March, while wage growth has continued to slow.
Inflation stood at 1.9% in August, unchanged from July, though underlying measures point to a pace closer to 2.5%. With the federal government removing most retaliatory tariffs on U.S. goods, upward pressure on prices is expected to ease in the months ahead.
Against this backdrop, the Bank said its Governing Council viewed a rate cut as necessary to balance risks, support growth, and maintain price stability. “We will support economic growth while ensuring inflation remains well controlled,” the statement said. Policymakers will continue to monitor how shifting trade dynamics affect exports, business investment, employment, and consumer prices.
The next interest rate decision, along with the Bank’s October Monetary Policy Report, will be released on October 29, 2025.