The Bank of Canada lowered its key interest rate by 25 basis points, bringing it down from 2.50% to 2.25%.
Governor Tiff Macklem said the latest move “reflects ongoing weakness in the economy and contained inflationary pressures.” It’s the second consecutive cut this year and part of a broader effort to keep growth from stalling without letting prices rise too quickly.
“We expect very modest growth through the rest of the year with some pickup in 2026,” Macklem told reporters in Ottawa. He added that the current slowdown is “more than a cyclical downturn,” pointing to a deeper structural adjustment that is limiting Canada’s productive capacity.
Canada’s gross domestic product shrank by 1.6 percent in the second quarter as exports and business investment fell. The unemployment rate stayed at 7.1 percent in September after two months of losses, while wage growth slowed. The Bank expects GDP growth to average less than one percent this year before improving gradually over the next two years.
Macklem said the Bank has now lowered its policy rate by a full percentage point since January. “We’ve seen some easing in financial conditions, which should support spending and housing,” he said. “But uncertainty remains high, and that’s weighing on confidence.”
Inflation came in at 2.4 percent in September, slightly above the Bank’s expectations. Core measures of inflation remain near 3 percent, but Macklem said they are starting to ease. “We expect inflationary pressures to moderate and CPI to stay close to our 2 percent target,” he said.
Senior Deputy Governor Carolyn Rogers said household spending has held up better than expected but will likely slow as job concerns and higher costs affect confidence. “People are being cautious,” she said. “When you’re uncertain about your job, you spend differently.”
Macklem said the current rate is “about right” for the Bank’s objectives but left the door open to further action. “Our job is never done,” he said. “If the outlook changes, we’re prepared to respond.”
He cautioned that monetary policy has limits in dealing with structural challenges, such as weaker investment and slower productivity growth. “We can support the economy as long as inflation is well controlled,” he said, “but we can’t restore it to its previous growth path.”
The Bank expects growth to pick up slowly in 2026 as exports and investment recover, though it warned the path will be uneven. Macklem said the Bank’s main goal remains maintaining confidence in the value of money. “It’s really important that Canadians have confidence in price stability,” he said.