- Rate Cut: The Bank of Canada reduced its target for the overnight rate by 25 basis points to 2.5%. This marks the first rate cut since July 2024, lowering the Bank Rate to 2.75% and the deposit rate to 2.45%.
- Economic Outlook: Global economic growth shows signs of slowing after a period of resilience to US tariffs, with cautious US consumers and weakening investment in China. In Canada, the economy contracted by 1.5% in the second quarter due to a sharp drop in exports. Looking ahead, slow population growth and a weak labor market are expected to weigh on household spending.
- Inflation: Canada’s CPI inflation remained at 1.9% in August, while underlying inflation is estimated at around 2.5%. The upward momentum in core inflation seen earlier in the year has dissipated. Additionally, the recent removal of most retaliatory tariffs on US goods is expected to reduce upward pressure on prices.
- Monetary Policy Stance: The Governing Council decided a policy rate reduction was appropriate to better balance risks, citing a weaker economy and reduced upside risk to inflation. The Bank will continue to carefully assess how trade disruptions, including US tariffs, affect exports, employment, and business investment.
- The next scheduled date for the Bank of Canada to announce its overnight rate target is October 29, 2025, which will coincide with the release of the Bank’s October Monetary Policy Report.
Bank of Canada lowers policy rate to 2½%
