Bank of Canada Slashes Rates to 2.25% in Surprise Stimulus Move

Bank of Canada: the Bank of Canada reduced interest rates by an additional 25 basis points, bringing its overnight rate down to 2.25 percent. m The benchmark established by the Bank of Canada serves as the basis for commercial banks’ lending rates to consumers.

This implies that Canadians who have variable rate loans, like mortgages, would probably notice a decrease in their expenses, and those who are applying for loans could soon have access to better rate alternatives.

Following the decrease in September, Wednesday’s action is the central bank’s second cut since March and its fourth cut in 2025.

Bank of Canada Gradually Lowers Rates Amid Economic Uncertainty

After boosting rates to combat raging inflation, the Bank of Canada has been progressively lowering its monetary policy since spring 2024, when it peaked at 5%.

Following the reduction announcement, the central bank pointed out that policymakers are faced with “uncertainty” due to the trade war and tariffs, which might make it hard to forecast if more cuts are imminent.

In order to avoid greater expenses, U.S. tariffs have caused firms and economies worldwide to look for alternate trade partners. In some instances, these enterprises have reduced their investment and even laid off employees.

The effects are becoming more apparent, even if the world economy has withstood the unprecedented increase in US tariffs. The Bank of Canada stated in a statement on Wednesday that “trade relationships are being reconfigured and ongoing trade tensions are dampening investment in many countries.”

Due to a decline in exports and poor company investment in the face of increased uncertainty, Canada’s GDP shrank by 1.6% in the second quarter. The labor market in Canada is still fragile. Hiring has been slow across the economy, and job losses in trade-sensitive industries are still increasing.

The Bank of Canada resumed offering a future forecast in its announcement. This indicates that the central bank is predicting the Canadian economy once again by examining present patterns.

According to the Bank, GDP will increase by 1.2% in 2025, 1.1% in 2026, and 1.6% in 2027. Following a sluggish second half of this year, growth picks up speed on a quarterly basis in 2026, according to the Bank of Canada.

Because of the unexpected nature of Trump’s tariff measures and the “uncertainty” of the trade war, central bankers have refrained from providing outlooks since January.

Shortly after the announcement, Bank of Canada Governor Tiff Macklem gave a speech on the central bank’s decision-making process on Wednesday and the outlook for the Canadian economy.

According to Macklem, the economy will increase somewhat, but “modestly,” during the next months and into 2026, which is “not going to feel very good.”

A serious recession is unlikely, he said.

Speaking to reporters on Wednesday, Macklem said, “What we’re not forecasting is a sharp downdraft in the Canadian economy with a big rise in the unemployment rate, which is typical of recessions.”

“Our own forecast is positive but very modest in the near term, then picking up if you’re just looking at the quarterly growth profile.”

Macklem also discussed how they are being cautious about the U.S. government, even if there may now be a better sense of where the economy is headed with “modest growth” over the next months.

“The economy is always changing. There is a great deal of uncertainty. And President Trump’s most recent remarks over the weekend served as a reminder, if we needed one. Regarding U.S. trade policy, there is a great deal of ambiguity,” Macklem said.

What effect the U.S. tariffs will have on the Canadian economy is still somewhat unclear. What is the outcome of the structural change? All of it indicates that, although we have released a prediction today, the range of possible outcomes is greater than normal.