The Bank of Canada cut its overnight interest rate target by 25 basis points to 2.50%, as expected, after keeping it unchanged at the last three meetings. The bank’s benchmark interest rate now stands at 2.75% and its deposit rate at 2.45%.
The bank’s report stated that economic growth is beginning to show signs of slowing after remaining resilient in the face of higher US tariffs and continued uncertainty. GDP fell by 1.5% in the second quarter, with exports declining by 27%. Employment declined over the last two months, and the unemployment rate rose to 7.1% in August.
Inflation was 1.9% in August, the same as in July. Excluding taxes, inflation was 2.4%. The bank believes that the removal of most retaliatory tariffs on US imports means less upward pressure on commodity prices in the future.
With the economy weakening and inflation risks low, the Bank deemed a 25 basis point rate cut appropriate to balance these risks. The Bank will focus on ensuring Canadians’ confidence in price stability during this period of global turmoil, supporting economic growth, and ensuring inflation remains under control.