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October 29, 2025BANK OF CANADA MONETARY POLICY The Bank of Canada reduced its target for the overnight rate by 25 basis points to 2.25%, with the Bank rate down to 2.50% and the deposit rate down to 2.20%.
The global economy has been resilient, but the impact of US tariffs is becoming evident where trade tensions are dampening investment and trade relations are being reconfigured. Uncertainty around US trade policies has eased from its peak in early 2025 but remains elevated. Global growth is expected to average 3.2% in 2025 and 2.9% in 2026. US economic growth remained strong in the first half of 2025 and is expected to average 2.1% in 2025 and 2.2% in 2026. Consumption spending growth is expected to remain strong as well as business investment. Employment growth has weakened since April, but the unemployment rate remained stable. Euro Area growth has slowed due to persistent weakness in exports and decreased growth in domestic demand. China’s economic growth is expected to slow after resilient three quarters. China has been rapidly redirecting exports away from US to other countries.
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 sharply and business investment also declined. Consumer spending per person and residential investment have continued to increase in the second quarter. In the second half of 2025, evidence suggests that the impact of trade conflict is broadening. In addition to US tariffs, Chinese tariffs on canola, peas, pork and seafood are adding pressure on export volumes. Exports to non-US markets are expected to have increased. Canada’s GDP is projected to grow by 1.2% in 2025, 1.1% in 2026 and 1.6% in 2027
Employment growth has been weak due to slowing demand and low population growth. Industries sensitive to trade have been the primary source of weakness in employment growth since the beginning of the year. Most businesses surveyed in the Business Outlook Survey anticipate that their workforce will remain unchanged over the next 12 months, citing ongoing tariff uncertainty, soft demand and minimal capacity pressures.
CPI inflation rose to 2.4% in September as the drag from gasoline prices faded. Inflation excluding indirect taxes was 2.9% and energy price inflation was -2.6%. Inflation in services prices remains close to 3%, supported by strong growth in prices for some shelter components, financial services, fast food and motor vehicle insurance. But inflationary pressures from shelter services prices have been moderating as inflation in mortgage interest costs has continued to ease. CPI inflation is expected to be 2.0% in 2025, and 2.1% in 2026 and 2027.
The Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. If the outlook changes, they are prepared to respond and will be assessing incoming data carefully relative to the Bank’s forecast.
The structural damage caused by the trade conflict reduces the capacity of the economy and adds costs. This limits the role that monetary policy can play to boost demand while maintaining low inflation. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.
The next scheduled date for announcing the overnight rate target is December 10, 2025. The Bank’s next Monetary Policy Report will be released on January 28, 2026.
Source: Monetary Policy press release; Monetary Policy press conference; Monetary Policy Report, October 2025
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