Bank of Canada Cuts Key Rate to 2.5%

Ottawa. The Bank of Canada has lowered its key interest rate for the first time since March, from 2.75% to 2.5%. The governing council voted unanimously.

Governor Tiff Macklem said on Sept. 17 that the Canadian economy is weakening: the labour market has softened, inflation pressures have eased, and risks of further price growth have declined after Ottawa removed most retaliatory tariffs against the U.S.

GDP fell by 1.6% in the second quarter, in line with forecasts. Exports were hit hardest as the U.S. imposed heavy tariffs on autos, steel, aluminum, copper, and lumber. China restricted imports of Canadian canola, pork, and seafood. Unemployment rose to 7.1%, with significant job losses in trade-related sectors.

The Consumer Price Index stood at 1.9% in August, slightly below the 2% target. Core inflation is around 2.5%. Macklem noted that while price pressures remain, overall inflation is stabilizing.

On the positive side, consumption and housing activity picked up in Q2, but weak labour markets and low population growth may limit demand in the coming months.

The Bank pledged close monitoring of risks and quick action if needed. The next rate decision will be announced on October 29, 2025, alongside the Monetary Policy Report.