Bank of Canada Delivers First Rate Cut Since March
The Bank of Canada interest rate cut has arrived, with the central bank lowering its policy rate to 2.5% in a widely expected move. Governor Tiff Macklem said weaker growth and easing inflation risks made the cut necessary to stabilize the economy.
“Considerable uncertainty remains,” Macklem noted. “But with a weaker economy and less upside risk to inflation, a reduction balances the risks going forward.”
Why the Cut Happened Now
The decision follows several economic shifts since July. Inflation excluding gas slowed, job losses piled up, and the government removed retaliatory tariffs against the U.S. That change eased pressure on food and consumer prices, giving the bank more room to act.
Still, Macklem pointed out that U.S. tariffs and trade policy continue to cloud Canada’s outlook. “The Canadian economy is being affected by both U.S. tariffs and their unpredictability,” he said.
Banks Quickly Follow With Lower Prime Rates
Within hours of the announcement, TD Bank, BMO, CIBC, and RBC cut their prime rates by 25 basis points to 4.70%. While welcome news, experts noted the impact will be modest for businesses already cautious about investing.
“It’s not going to make anybody jump out of their seat,” said Jonathon Azzopardi, owner of Laval Tool. “A single rate cut won’t change everything.”
A Snapshot of the Economy
Canada’s GDP slipped in the second quarter as expected, while exports to the U.S. slowed after an initial inventory surge to counter tariffs. Businesses trimmed investments, and over 100,000 jobs were lost in the last two months.
The unemployment rate now stands at 7.1%, with weakness spreading beyond tariff-exposed industries. Though consumer spending stayed strong in the spring, Macklem warned that rising joblessness could soon weigh on households.
Inflation Pressures Start to Ease
Core inflation measures, which exclude volatile gas prices, have begun to cool. The overall inflation rate sits at 1.9%, close to the bank’s 2% target. Macklem said pressures are “more contained” than earlier this year, reducing the risk of runaway costs.
“We don’t want Canadians to worry about big increases in the cost of living,” he said, while stressing that weak growth tipped the balance toward easing.
Economists Welcome the Move
Most economists expected the Bank of Canada to cut rates, especially after August’s subdued inflation report. Eric Lascelles, chief economist at RBC Global Asset Management, called the move “appropriate,” adding that the economy has been “profoundly underperforming” under the weight of the U.S. trade war.
Looking ahead, Lascelles said another cut before year-end seems “reasonable” and predicted further easing in early 2026 if growth remains sluggish.
What Comes Next
The Bank of Canada will announce its next interest rate decision on October 29. Until then, Canadians can expect debate over whether more cuts will follow.
Stay tuned to Maple Wire for the next news update.
