The Bank of Canada has lowered its benchmark interest rate by 25 basis points to 2.25 percent, marking its fourth cut in 2025 and the second since March. The decision is aimed at supporting a slowing economy amid growing global trade uncertainty and weakening business investment.
The rate reduction will likely ease borrowing costs for Canadians with variable-rate loans and mortgages, while also improving access to lower lending rates for new borrowers. The central bank has now scaled back rates significantly from the 5 percent peak reached in 2024, when aggressive hikes were implemented to contain soaring inflation.
In its statement, the Bank of Canada cited the ongoing impact of global tariffs and trade tensions, particularly those stemming from US trade policies, as a key factor behind the slowdown. “Canada’s economy contracted by 1.6 percent in the second quarter, reflecting a drop in exports and weak business investment,” the statement said, noting persistent softness in the labour market and continued job losses in trade-sensitive industries.
The central bank projected modest growth ahead, forecasting GDP expansion of 1.2 percent in 2025, 1.1 percent in 2026, and 1.6 percent in 2027. Governor Tiff Macklem said that while a sharp recession is not expected, growth will remain subdued for the foreseeable future. “Our outlook is positive but very modest in the near term,” he said, emphasizing that uncertainties surrounding US trade policy continue to complicate economic forecasting.
