The Bank of Canada on Wednesday delivered its first interest rate cut since March.
The central bank lowered its overnight benchmark rate by 25 basis points to 2.5%, a move that had been widely anticipated by markets as signs of economic weakness mounted both at home and abroad.
The Bank cited a weakening economy and less upside risk to inflation as the main reasons behind its decision.
In its statement, the Bank said trade tensions and higher US tariffs are weighing heavily on global growth. In the US, consumer spending has softened, and job gains have slowed, while Europe and China are also showing signs of weaker activity. Tariffs have pushed up some US prices, adding to inflation pressures south of the border.
In Canada, the economy shrank by about 1.5% in the second quarter, as exports plunged 27% after surging earlier in the year when companies rushed to beat tariff deadlines. Business investment also slipped, though housing and consumer spending remained resilient. Employment has declined in recent months, especially in trade-sensitive sectors, pushing the jobless rate to 7.1% in August. Wage growth has also slowed.
Meanwhile, inflation is holding near the Bank’s 2% target, and the recent removal of Canadian retaliatory tariffs on US goods is expected to ease price pressures somewhat in the months ahead.
While the Bank stressed it remains committed to maintaining price stability, it said a lower policy rate was necessary to support growth during a period of global upheaval.
“We will support economic growth while ensuring inflation remains well controlled,” the Bank said in its statement.
The next interest rate announcement is scheduled for late October, with analysts watching closely for signs of whether this rate cut marks the start of a longer easing cycle.
