BoC Statement: Bank of Canada cuts its policy rate by 25bps, as expected, to 2.50% (prev. 2.75%); With a weaker economy and less upside risk to inflation, GC judged that a reduction in the policy rate was appropriate to better balance the risks

Tariffs:

• After remaining resilient to sharply higher US tariffs and ongoing uncertainty, global economic growth is showing signs of slowing.

Economy:

• Canada’s GDP declined by about 1½% in Q2, as expected, with tariffs and trade uncertainty weighing heavily on economic activity.


• Exports fell by 27% in Q2, a sharp reversal from Q1 when Cos. were rushing orders to get ahead of tariffs.


• Business investment also declined in Q2, while consumption and housing activity both grew at a healthy pace.


• In the months ahead, slow population growth and the weakness in the labour market will likely weigh on household spending.

Inflation:

• Preferred measures of core inflation have been around 3% in recent months, but on a monthly basis the upward momentum seen earlier this year has dissipated.

Ahead:

• Looking ahead, the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity.


• Governing Council is proceeding carefully, with particular attention to the risks and uncertainties.


• GC will be assessing how exports evolve in the face of US tariffs and changing trade relationships.

Reaction details (14:51)

• Little sustained follow-through seen into USD/CAD with the rate decision largely in line with consensus.


• Market pricing is little changed with around 20bps of additional easing priced by year-end.

Analysis details (14:51)

• As expected, the BoC cut rates by 25bps with Governor Macklem noting a "clear consensus" to ease policy. The accompanying statement stated that the reduction was appropriate given the weaker economy and fewer upside risks to inflation. Additionally, the board judged that a reduction in the policy rate was appropriate to better balance the risks. On the trade front, policymakers remain cautious over the risks stemming from US tariff actions. Moving forward, The Bank will continue to assess the risks, look over a shorter horizon than usual, and be ready to respond to new information.


• Note, BoC removed the language from the prior statement which said, "if a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate”.

17 Sep 2025 - 14:45- ForexData- Source: BoC