The Bank of Canada cut its key interest rate by 25 basis points to 2.25% on Wednesday, citing ongoing weakness in the economy and inflation near target, while signaling that the easing cycle could end if economic conditions evolve as expected.
The central bank said the Canadian economy faces a “difficult transition” amid trade-related structural challenges, with second-quarter GDP contracting 1.6% due to weak exports and business investment.
“US trade actions and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber,” the Bank said in its statement. “Growth will get some support from rising consumer and government spending and residential investment, and then pick up gradually as exports and business investment begin to recover.”
Canada’s labor market remains soft, with the unemployment rate steady at 7.1% in September and wage growth slowing. Employment gains in September followed two months of sizeable losses, the Bank said.
Inflation remains close to the Bank’s 2% target. Consumer price index inflation was 2.4% in September, slightly above expectations, while core inflation measures hovered around 3%. The Bank expects inflationary pressures to ease in the months ahead.
“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,” the Bank said. “If the outlook changes, we are prepared to respond.”
The Bank projects GDP growth of 1.2% in 2025, 1.1% in 2026, and 1.6% in 2027, with gradual strengthening as exports and business investment recover.
Following the announcement, The TSX, was down 0.3% by midday Wednesday, reflecting market caution amid trade uncertainty and soft economic data.