The Bank of Canada has reduced its benchmark rate by 25 basis points, moving back into rate-cutting mode amid signs of a weakening economy and sluggish labour market.
The central bank said on Wednesday morning that it had lowered the policy rate – which strongly influences the direction of variable mortgage rates – to 2.50%, the first time it’s cut since March.
That move, which was largely expected by financial markets, ends a streak of three consecutive decisions to hold and means the Bank has now halved its trendsetting interest rate over the past 18 months.
Fears of a potential sharp inflation uptick over the summer halted a run of seven rate cuts by the Bank between June last year and this March as decisionmakers waited to see how US tariffs and Canadian countermeasures would impact the economy.
But while the economy remained surprisingly resilient in the opening months of that trade war, triggered by US president Donald Trump shortly after taking office, recent signals suggest the outlook is beginning to worsen.
The national economy contracted by 1.6% in 2025’s second quarter, according to Statistics Canada, even as higher household and government expenditure helped offset some of that shock.
Meanwhile, the labour market shed 66,000 jobs last month and the national unemployment rate jumped to its highest level in nearly a decade, excluding the pandemic.
Expectations of a September cut by the Bank soared following those reports, and remained undimmed even after an increase in Canada’s annual inflation rate announced yesterday.
Attention now shifts to Bank governor Tiff Macklem’s press conference later this morning, which should give fresh clues on whether more cuts could be on the way.
The central bank has two more announcements scheduled between now and the end of the year – on October 29 and December 10 – with four of Canada’s Big Six banks expecting at least one more rate cut, to 2.25%.
Housing market activity already posting a mild recovery across Canada last month, and analysts including Canadian Real Estate Association (CREA) senior economist Shaun Cathcart believe today’s cut could bring more homebuyers off the sidelines.
But the US trade war and its potential impact on the economy remains the single biggest question market hovering over the Canadian outlook, according to Scotiabank analyst Patrick Perrier. “Any increase in trade tensions could further delay this recovery or even reverse it,” he said in August.
CMP
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