Canada Interest Rate

The Bank of Canada cut its benchmark interest rate by 25bps to 2.5% in its September 2025 decision, as largely expected by markets, to resume its cutting cycle following three consecutive holds. The central bank noted that the Canadian economy showed signs of fragility to tariffs by the United States following an initial period of resilience, evidenced by the 1.6% contraction in the GDP during the second quarter amid the 27% decline in exports. While consumption and housing market activity remained robust, the Governing Council noted that it expects the impact of trade barriers and slowing population growth to gradually weigh on private spending and the labor market. The last two job reports showed declines in net employment, lifting unemployment and pressuring wage growth. In the meantime, CPI inflation remained below the 2% target in August, adding room for softer policy to attend to growth concerns.