In a significant monetary policy shift, the Bank of Canada has lowered its target for the overnight rate by 25 basis points to 2.5%. The accompanying Bank Rate now stands at 2.75% and the deposit rate at 2.45%.
"Given the slowing global economy and persistent uncertainties, the Governing Council concluded that this adjustment in the policy rate was necessary in order to better balance the risks that lie ahead," said Tiff Macklem, the Governor of the Bank of Canada.
Despite signs of resilience against rising U.S. tariffs, the global economic growth trajectory is showing worrying signs of deceleration. "In the United States, while business investment remains robust, consumer sentiment is lagging and employment growth is beginning to falter," explained Macklem. He further highlighted that inflation has recently gained traction as businesses pass some of the tariff-induced costs onto consumers.
The eurozone also faces challenges, as growth levels have moderated amid the impact of U.S. trade policies. China has shown a degree of resilience previously this year; however, according to forecasts, its growth is now softening alongside a decline in investment. Macklem noted, "Global oil prices have stabilized, aligning closely with expectations laid out in our July Monetary Policy Report."
When examining the domestic front, Canada’s GDP has faced a stark decline of about 1.5% in the second quarter. This downturn was anticipated, mainly due to the adverse effects of tariffs and trade uncertainties. Exports fell sharply, dropping by 27%, a notable contrast from the previous quarter when companies hurried to fulfill orders to avoid impending tariffs. "While exports have struggled, both consumption and housing sectors have shown resilient growth during the same period," said a senior economist at the Bank.
The labor market has displayed concerning trends as well, with employment figures revealing a downturn over the last two months following the last Monetary Policy Report in July. "Job losses are being concentrated in sectors sensitive to trade dynamics, and the overall hiring intentions appear reduced," remarked Carolyn Rogers, Senior Deputy Governor. The unemployment rate has edged up to 7.1% as of August, alongside easing wage growth.
In terms of inflation metrics, the Consumer Price Index (CPI) remained steady at 1.9% in August, mirroring numbers from the July report. Excluding taxes, inflation rates were noted at 2.4%. Rogers emphasized that "although preferred measures of core inflation are hovering around 3%, earlier monthly upward trends have lost momentum."
The government's decision to eliminate many retaliatory tariffs on imports from the U.S. is expected to mitigate further upward pressure on the prices of affected goods. Looking ahead, the Governing Council remains cautious, considering the consequences of disruptive trade shifts while striving to maintain stability in prices.
Macklem emphasized the importance of monitoring key economic indicators closely. "We will assess how exports evolve in response to U.S. tariffs, and understand how this may influence business investment, household spending, and overall inflation expectations."
In this context, the Bank of Canada is dedicated to safeguarding Canadians’ trust in economic stability during these tumultuous times. “We will prioritize supporting economic growth while ensuring inflation numbers remain manageable,” reiterated Macklem.
The next opportunity for the Bank to announce an updated overnight rate is scheduled for October 29, 2025, coinciding with the next Monetary Policy Report. Public engagement in this dialogue regarding monetary policy will be facilitated through a press conference following the announcement.
The roadmap ahead remains fraught with uncertainties, and the Bank of Canada will proceed diligently, keenly aware of the intricate interplay between economic forces both domestically and abroad. As geopolitical and trade landscapes continue to shift, the focus on long-term stability and growth remains paramount.