FX.co ★ Bank of Canada Cuts Rate by 25bps

In its September 2025 meeting, the Bank of Canada reduced its benchmark interest rate by 25 basis points, bringing it down to 2.5%. This move, anticipated by market analysts, marks the central bank's decision to resume its rate-cutting path after three periods of holding rates steady. The Bank highlighted emerging vulnerabilities in the Canadian economy, particularly in response to U.S. tariffs. These vulnerabilities followed an earlier phase of economic resilience but became evident with a 1.6% contraction in GDP during the second quarter, accompanied by a significant 27% drop in exports. Despite continued strength in consumer spending and housing market activity, the Bank's Governing Council expressed concerns that trade barriers and decelerating population growth may gradually dampen private spending and affect the labor market. Recent employment reports have shown reductions in net job creation, resulting in rising unemployment and putting downward pressure on wage growth. Meanwhile, Consumer Price Index (CPI) inflation remained below the 2% target in August, providing the Bank with additional leeway to adopt a more accommodative policy stance to bolster economic growth.