Bank of Canada cuts key interest rate once again as US 'remains unpredictable'

The Bank of Canada has lowered its key interest rate to 2.25 per cent.

It’s the second cut in a row for the bank, which brought the rate down from 2.75 per cent to 2.5 per cent last month.

The announcement comes as US-Canada relations remain troubled, with President Donald Trump ending trade talks between the two countries several days ago.

He also said he’d be placing an extra 10 per cent tariff on Canadian goods, but has yet to provide details about that move.

Inflation, meanwhile, was 2.4 per cent last month, with food prices on the up. It was 1.9 per cent in August.

In its summary of the decision published this morning, the Bank of Canada said US trade policy "remains unpredictable," with uncertainty "still higher than normal."

For Canada, that means GDP growth of 1.2 per cent in 2025, 1.1 per cent in 2026 and 1.6 per cent in 2027, according to the Bank's estimates.

"While the global economy has been resilient to the historic rise in US tariffs, the impact is becoming more evident," its report explained. "Trade relationships are being reconfigured and ongoing trade tensions are dampening investment in many countries."

Global growth, the Bank said, will now slow slightly from 3.25 per cent in 2025 to three per cent in 2026 and 2027.

The US, meanwhile, has seen "strong" economic activity "supported by the boom in AI investment." But the central bank warned: "At the same time, employment growth has slowed and tariffs have started to push up consumer prices."

In Canada, weak investment and a drop in exports brought about an annualized contraction in GDP of 1.6 per cent in the second quarter, the Bank said. Despite that, household spending "grew at a healthy pace."

The Bank added: "US trade actions and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber. As a result, GDP growth is expected to be weak in the second half of the year.

"Growth will get some support from rising consumer and government spending and residential investment, and then pick up gradually as exports and business investment begin to recover."

The Bank also said of Canada that:

• The labour market "remains soft," with job losses building up in "trade-sensitive sectors" and hiring "weak across the economy"
• Less rapid population growth "means fewer new jobs are needed to keep the employment rate steady"
• Excess capacity in the economy is expected to persist and be taken up gradually
• According to the Bank's "preferred measures," core inflation has been "sticky" at around three per cent
• "Inflationary pressures" will "ease" in the coming months, with CPI remaining at about two per cent "over the projection horizon

The Bank said that, given the above, it expects its current policy rate will keep inflation "close" to two per cent "while helping the economy through this period of structural adjustment."

It added: "The Canadian economy faces a difficult transition. The structural damage caused by the trade conflict reduces the capacity of the economy and adds costs.

"This limits the role that monetary policy can play to boost demand while maintaining low inflation. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval."

The Bank's next decision is due on Dec. 10.