Canadian Central Bank slashes key interest rate to 2.5%

Slowing global economic expansion due to trade issues prompts the Bank of Canada to lower the primary borrowing rate by 0.25 percentage points, setting it at 2.5%.

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2025 September 19 . 4:33 AM

2 min read

Lower key interest rate set by Bank of Canada to 2.5%

Canadian Central Bank slashes key interest rate to 2.5%

The Bank of Canada has announced a rate cut, lowering the key lending rate by 25 basis points to 2.5 per cent. This decision comes in response to a weakening labour market and inflation risks, as cited by Governor Tiff Macklem.

In the second quarter of this year, Canada's gross domestic product (GDP) slipped by about 1.5 per cent. The contraction was due, in part, to trade uncertainties that led to a decline in business investment. On a positive note, housing activity increased, and consumption was stronger than expected.

Exports from Canada fell by 27 per cent in the second quarter after a significant spike in the first quarter. This decline can be attributed to U.S. tariffs on Canadian goods and the unpredictability of U.S. trade policy, which is affecting key sectors like auto, steel, and aluminium in Canada.

The federal government's decision to remove most retaliatory tariffs on imported goods from the U.S. will mean less upward pressure on the prices of these goods going forward. However, Chinese tariffs on canola, pork, and seafood continue to contribute to economic uncertainty in Canada.

The Bank of Canada's governing council, including Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers, explained that with a weaker economy and less upside risk to inflation, a reduction in the policy rate was appropriate to better balance the risks of going forward. The rate cut is intended to stimulate economic growth in Canada and help manage the economic impact of trade disruptions.

Job losses in Canada are concentrated in trade-sensitive sectors, and low population growth and weakness in the labour market are likely to weigh on overall household spending. The Bank of Canada's governing council will be keeping a close eye on the impacts of tariffs and the uncertainty they cause on economic activity and inflation.

The rate cut, the first since March of this year, was widely anticipated due to inflation data showing consumer prices rose by 1.9 per cent in August year over year. This rate cut is a strategic move by the Bank of Canada to support Canada's economy amidst the ongoing trade uncertainties.