- Decision
- Lower
- Rate change
- 25 bps
- overnight rate
- 2.25%
The Bank of Canada cut its overnight rate target by 25 bp to 2.25 percent, lowering the Bank Rate to 2.50 percent and the deposit rate to 2.20 percent, citing a contracting economy, a soft labour market and an inflation profile expected to stay near the 2 percent target despite persistent core pressures. This marks the third 25 bp easing this year—after moves in January, March and September—bringing cumulative 2025 cuts to 75 bp. The usual 25 bp corridor around the policy rate is unchanged. GDP shrank 1.6 percent in Q2 and the Bank projects meagre growth of 1.2 percent in 2025, 1.1 percent in 2026 and 1.6 percent in 2027, with the unemployment rate already at 7.1 percent and excess capacity set to linger. CPI was 2.4 percent in September and ex-tax inflation 2.9 percent, while preferred core measures remain near 3 percent, but broader indicators place underlying inflation around 2½ percent and headline inflation is forecast to hover close to target over the horizon. Externally, the Canadian dollar has slipped against the USD amid softer global growth to about 3 percent by 2026-27, reconfigured trade flows and subdued investment, although global financial conditions have eased and oil prices are steady. The Governing Council considers the new stance appropriate to balance inflation control with support for a trade-hit economy and pledges to adjust policy if the outlook deviates from the October projection ahead of the next rate announcement on 10 December.
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.