As was widely expected, the Bank of Canada cut its trendsetting overnight interest rate by 25 basis points, or a quarter of a percent, amid signs that the economy is struggling.
The central bank’s influential interest rate now stands at 2.25% after a second consecutive cut in recent months.
Financial markets and economists had priced in a near 100% chance that the Bank of Canada would further reduce interest rates at its latest policy meeting.
In prepared remarks, Bank of Canada Governor Tiff Macklem said that policymakers are likely to hold the overnight interest rate at its new level for the time being.
Macklem said that a rate of 2.25% might be the right level to keep inflation close to the central bank’s 2% annualized target while also supporting economic growth.
Along with the latest interest rate cut, the Bank of Canada delivered an updated outlook for the Canadian economy that forecasts weak growth ahead.
The Bank of Canada said that Canada’s economy continues to struggle with U.S. tariffs and trade uncertainty, as well as signs of a softening labour market.
The central bank said that trade disruptions will structurally reduce the size of Canada’s economy.
As a result, the Bank of Canada forecasts that the country’s gross domestic product (GDP) will be 1.5% lower by the end of 2026 than previous projections.
