The Bank of Canada delivered another cut to interest rates by 25 basis points Wednesday, which lowers its overnight rate to 2.25 per cent.
Commercial banks set their lending rates to customers based on the Bank of Canada’s benchmark.
This means Canadians with variable rate loans like a mortgage will likely see their costs come down, and those applying for loans may soon see better rate options available.
Wednesday’s move marks the fourth cut by the central bank in 2025 and the second since March after September’s cut.
The Bank of Canada has been gradually adjusting its monetary policy down from a peak of five per cent since spring of 2024, after raising rates to curb red-hot inflation.
After announcing the cut, the central bank noted the ongoing “uncertainty” the trade war and tariffs bring to policy makers, which may make it difficult to predict if more cuts could be coming soon.
Tariffs imposed by the United States have led businesses and economies across the globe to seek alternative trading partners to avoid higher costs, and in some cases have pulled back on investing and even laying off workers.
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“While the global economy has been resilient to the historic rise in US tariffs, the impact is becoming more evident. Trade relationships are being reconfigured and ongoing trade tensions are dampening investment in many countries,” said the Bank of Canada Wednesday in a statement.
“Canada’s economy contracted by 1.6 per cent in the second quarter, reflecting a drop in exports and weak business investment amid heightened uncertainty. Canada’s labour market remains soft. Job losses continue to build in trade-sensitive sectors and hiring has been weak across the economy.”
In its statement, the Bank of Canada returned to providing a forward outlook. This means the central bank is once again giving a forecast for the Canadian economy based on analyzing current trends.
“The Bank projects GDP will grow by 1.2 per cent in 2025, 1.1 per cent in 2026 and 1.6 per cent in 2027. On a quarterly basis, growth strengthens in 2026 after a weak second half of this year,” said the Bank of Canada.
Central bankers paused giving outlooks since January citing the “uncertainty” of the trade war and Trump’s tariff policies — which can be unpredictable.
Governor Tiff Macklem at the Bank of Canada spoke shortly after making the announcement on how the central bank reached Wednesday’s decisions and the state of the Canadian economy going forward.
Macklem said there will be some limited but “modest” growth for the economy over the next few months and into 2026 that is “not going to feel very good.”
He suggested a severe recession is unlikely.
“What we’re not forecasting is a sharp downdraft in the Canadian economy with a big rise in the unemployment rate, which is what is typical of recessions,” said Macklem speaking to reporters Wednesday.
“If you’re just looking at the quarterly growth profile, our own forecast is positive but very modest in the near term and then picking up.”
Macklem also spoke about how although there may now be a clearer picture of where the economy is heading with “modest growth” over the next few months, they are staying cautious when it comes to the U.S. administration.
“The economy is always evolving. There is a lot of uncertainty out there. And if we needed a reminder over the last weekend, we got one with President Trump’s most recent comments. There’s a lot of uncertainty about U.S. trade policy,” said Macklem.
“There’s still a fair amount of uncertainty about what is the impact of U.S. tariffs on the Canadian economy. How does the structural change play out? So what all that means is, yes, we’ve published an outlook today, but there is a wider than usual range of outcomes around that outlook.”
– More to come
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