- Decision
- Lower
- Rate change
- 25 bps
- overnight rate
- 2.5%
The Bank of Canada cut its target for the overnight rate by 25 bp to 2.50 % on 17 September 2025, setting the Bank Rate at 2.75 % and the deposit rate at 2.45%, saying softer domestic activity and reduced upside inflation risks called for additional support. After trimming rates by 25 bp in January and another 25 bp in March before two holds, the policy rate now sits 75 bp below its level at the start of the year. The corridor width is unchanged at 25 bp. Real GDP fell about 1.5 % in Q2 as exports collapsed 27 % and business investment turned down, while employment has declined for two consecutive months, lifting the unemployment rate to 7.1 % in August and dampening wage growth. CPI inflation remained at 1.9 % in August, core measures hover near 3 % but have lost momentum, and the Bank judges underlying inflation around 2.5%, with the removal of most retaliatory US-related tariffs expected to ease future price pressures. The Canadian dollar has held steady against the USD amid easier global financial conditions, even as US tariffs weigh on euro-area trade and China’s growth moderates. Governing Council will move cautiously, monitoring trade-related spill-overs to exports, investment, jobs and prices, and reiterated its commitment to support growth while keeping inflation well anchored.
Rate evolution
From June 2025 to September 2026, the Bank of Canada lowered its target for the overnight rate by 50 basis points to 2.25%, after holding at 2.75% through July 2025, cutting in September and October 2025, and then pausing through September 2026. The initial holds reflected high uncertainty over US tariffs and trade negotiations, while the cuts followed weakening exports and business investment, increased labour market slack and fading core inflation momentum, before the Bank said the overnight rate was about right if inflation stayed near 2% and activity evolved broadly as projected.
It held at 2.25% on June 10 and July 15, 2026, as uncertainty about US trade policy persisted and the conflict in the Middle East kept oil prices elevated, while the economy remained in excess supply even as growth picked up and broadened. On June 10, the Bank looked through a rise in headline inflation to 2.8% in April because core inflation had moved down to around 2% and there was limited evidence of broad-based pass-through, while warning it would not let higher energy prices become persistent inflation. By July 15, it judged the policy rate appropriate to sustain the recovery and return inflation to 2%, noting that second-quarter growth was estimated at 2.5%, consumer spending remained solid and export growth had resumed, while labour market conditions stayed soft and core inflation remained close to 2%. On September 2, the Bank again held the rate as the economy and inflation evolved broadly as forecast, noting that second-quarter gross domestic product rose 3.3% and the recovery broadened but excess supply persisted, while consumer price index inflation hovered around 3% mainly because of gasoline prices and core measures remained close to 2% in July, even as prolonged high oil prices and new tariffs increased upside inflation risks and made growth prospects more uncertain.