The Bank of Canada has lowered its target for the overnight rate by 25 basis points to 2.25%. The Bank Rate is now at 2.5%, and the deposit rate stands at 2.20%. This move comes as the effects of recent US trade actions on economic growth and inflation have become clearer.
In its latest Monetary Policy Report, the Bank resumed providing projections for both global and Canadian economies. However, it cautioned that “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.”
Global economic growth has slowed in response to ongoing trade tensions. According to the Bank’s report, “the global economy slows from about 3¼% in 2025 to about 3% in 2026 and 2027.” In the United States, strong economic activity driven by AI investment contrasts with slower employment growth and rising consumer prices due to tariffs. The euro area faces weaker exports and domestic demand, while China’s business investment has softened despite shifting export destinations.
Canada’s economy contracted by 1.6% in the second quarter, attributed largely to reduced exports and weak business investment amid heightened uncertainty. Sectors such as autos, steel, aluminum, and lumber have been particularly affected by US trade measures. Household spending has remained steady but is not enough to offset these challenges.
Labour market conditions remain subdued across Canada. Although there were some employment gains in September after two months of losses, “job losses continue to build in trade-sensitive sectors and hiring has been weak across the economy.” The unemployment rate held steady at 7.1% last month.
Looking ahead, the Bank projects GDP growth rates of 1.2% for 2025, 1.1% for 2026, and an improvement to 1.6% in 2027.
Inflation stood at 2.4% in September—slightly above expectations—with core inflation indicators suggesting underlying price increases near the mid-point of the Bank’s target range: “Expanding the range of indicators… suggests underlying inflation remains around 2½%. The Bank expects inflationary pressures to ease in the months ahead…”
Explaining its decision on rates, Governing Council stated: “With ongoing weakness in the economy and inflation expected to remain close to the 2% target, Governing Council decided to cut the policy rate by 25 basis points… If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level…”
The next scheduled announcement regarding interest rates will be made on December 10, with another Monetary Policy Report set for release on January 28 next year.
The Bank emphasized that Canada faces a challenging transition period due to structural changes resulting from international trade disputes: “The structural damage caused by the trade conflict reduces the capacity of the economy and adds costs… The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”
