The Bank of Canada reduced its target for the overnight rate by 25 basis points to 2.50%, with the Bank rate down to 2.75% and the deposit rate down to 2.45%.

Global economic growth has started to slow due to US tariffs and ongoing uncertainty. US business investment has been strong, but consumers are cautious, and employment growth has slowed. Inflation has picked up in US in recent months as business pass on tariff costs to consumers. Growth in the Euro Area has moderated with US tariffs affecting trade. China’s economy softened in recent months after stronger growth in the first half of the year. Global oil prices are close to their levels assumed in the July Monetary Policy Report (MPR) and financial conditions have eased further. Canada’s exchange rate has been stable relative to the US dollar.

In Canada, GDP declined by 1.6% in the second quarter after a robust growth in the first quarter due to a pull-forward in exports to get ahead of tariffs. In the second quarter, exports fell by 27% and business investment also declined. In the months ahead, slow population growth and the weakness in the labour market will likely weigh on household spending. Employment has declined past two months, and job losses have been concentrated in the trade-intensive sectors. Unemployment rate has moved up to 7.1% in August and wage growth continues to ease.

CPI inflation was 1.9% in August, same as the previous month. Excluding taxes, inflation was 2.4% in August. Underlying inflation is assessed to be around 2.5%. The federal government’s recent decision to remove most retaliatory tariffs on imported goods from the US will mean less upward pressure on the prices of these goods going forward.

Governing Council will continue to asses the risks and uncertainties facing the Canadian economy, including: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve. 

The Governing Council remains focused on ensuring Canadians have confidence in price stability through this period of global upheaval, and will support economic growth while ensuring inflation remains well controlled.

The next scheduled date for announcing the overnight rate target is October 29, 2025. The banks October Monetary Policy Report will be released at the same time.

Source: Monetary Policy press release; Monetary Policy press conference