The Bank of Canada has lowered its target for the overnight rate by 25 basis points, setting it at 2.5%. The Bank Rate now stands at 2.75% and the deposit rate at 2.45%.

Global economic growth is showing signs of slowing after having withstood increased US tariffs and ongoing uncertainty. In the United States, business investment remains strong, but consumer activity is cautious and job growth has decelerated. Inflation in the US has risen in recent months as some businesses have passed on tariff-related costs to consumers. Economic growth in the euro area has moderated due to US tariffs affecting trade, while China's economy is also slowing amid weaker investment. Global oil prices are close to those projected in the July Monetary Policy Report (MPR), and financial conditions have eased with higher equity prices and lower bond yields. The Canadian dollar has remained stable relative to the US dollar.

Canada's GDP decreased by approximately 1.5% in the second quarter, a result consistent with previous expectations. Tariffs and trade uncertainty have significantly affected economic activity, leading exports to fall by 27% following first-quarter gains driven by companies expediting orders ahead of tariffs. Business investment also declined during this period, though consumption and housing activity continued to grow steadily. The outlook suggests that slow population growth and a weak labor market will likely dampen household spending.

Employment figures have dropped over the past two months since the publication of the Bank’s July MPR, primarily impacting sectors sensitive to trade changes. Broader employment growth has slowed due to weak hiring intentions across industries, resulting in an unemployment rate increase to 7.1% in August and continued easing of wage growth.

Consumer Price Index (CPI) inflation was measured at 1.9% in August, matching levels from July's MPR; excluding taxes, inflation was at 2.4%. Core inflation measures remain around 3%, but monthly data show less upward momentum than earlier this year. Alternative indicators suggest underlying inflation runs near 2.5%. The federal government's recent move to remove most retaliatory tariffs on imported goods from the US is expected to reduce future price pressures on these products.

"With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks," according to a statement from Governing Council members.

"Looking ahead, the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity," they added. "Governing Council is proceeding carefully, with particular attention to the risks and uncertainties."

The statement noted: "Governing Council will be assessing how exports evolve in the face of US tariffs and changing trade relationships; how much this spills over into business investment, employment, and household spending; how the cost effects of trade disruptions and reconfigured supply chains are passed on to consumer prices; and how inflation expectations evolve."

"The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval," said officials from Canada's central bank. "We will support economic growth while ensuring inflation remains well controlled."

The next scheduled announcement regarding Canada's overnight rate target is set for October 29, when the Bank’s October Monetary Policy Report will also be released.