Bank of Canada delivers 1st interest rate cut since March – National

Borrowing costs are coming down for some Canadians after the Bank of Canada on Wednesday delivered its first interest rate cut since March, lowering its overnight benchmark by 25 basis points from 2.75 per cent to 2.5 per cent.

Commercial lenders, like private banks, base their rates off of the key policy rate set by the central bank.

The Bank of Canada noted a “weaker economy” amid the current trade war including the latest reports on GDP as well as the unemployment rising above seven per cent last month meant “a reduction in the policy rate was appropriate.”

Meanwhile, the Bank says inflation has remained relatively stable, with price growth for consumers and businesses falling within its target range of between one and three per cent on an annual basis.

“With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks,” the Bank of Canada said in the statement.

Story continues below advertisement

“The disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”

2:20
How do central banks decide interest rates?

The Bank of Canada had previously held its overnight rate for the past three meetings, with Governor Tiff Macklem on multiple occasions referring to the “uncertainty” of the economic outlook requiring a more cautious approach to monetary policy — especially with the evolving trade war and tariff policies.

Get daily National news

Get the day’s top news, political, economic, and current affairs headlines, delivered to your inbox once a day.

Speaking to reporters after the announcement on Wednesday, Macklem said there was a “clear consensus” to cut rates this time.

“There was a clear consensus to cut our policy rate by 25 basis points. I think what tipped the balance really in favor of a cut this time was there was a clear sense that the balance of risk has shifted. The labor market is soft, and the inflation picture hasn’t really changed a great deal since where we were last January,” Macklem said.

Story continues below advertisement

Macklem also said the Bank of Canada is aware of the impacts tariffs are having on the economy, so it isn’t letting its guard down.

“Tariffs are weakening the Canadian economy — you can see that very acutely in the directly affected sectors and sectors,” Macklem said.

“The reality is tariffs are increasing trade friction with our biggest trading partner (the United States) that has efficiency costs, which monetary policy can’t undo. It can’t reverse that. What we can do is help the economy adjust while maintaining well-controlled inflation. That’s what we’re focused on.”

Trending Now

Since the trade war began, there have been warnings from economists and other experts that a recession could result from tariffs unless Canada is effectively able to pivot away from economic dependence on the U.S.

Story continues below advertisement

A recession is a period of economic weakness, where an economy shrinks instead of expands. The technical definition of a recession is two back-to-back quarters, or a six-month period, of negative GDP. Recessions also typically see rising unemployment and slowdowns in consumer spending.

Macklem said Wednesday that, based on the current data, the economy likely isn’t heading for a recession, but the next few months are “not going to feel good.”

More on Money
More videos

“We (The Bank of Canada) published three scenarios for the Canadian economy: one based on current tariffs, another one with an escalation of tariffs, and another with a de-escalation. If you take the current tariff scenario, which is roughly the tariff scenario we’re still in, we’re not expecting a recession,” Macklem said to reporters.

“Growth was clearly negative in the second quarter, we are expecting growth somewhere around one per cent in the second half of the year. So that is slow growth. It’s not going to feel good. It is growth, but it’s slow growth because the economy is adjusting to a different relationship with its biggest trading partner.”

Mackelm went out to say that the outlook could become more grim if there is an “escalation” in the trade war.

“In the escalation scenario where there’s a significant escalation of tariffs, U.S. tariffs, then in that scenario, the Canadian economy does go into recession and certainly the situation would be worse,” Macklem said.

&copy 2025 Global News, a division of Corus Entertainment Inc.