The Bank of Canada lowered interest rates for the first time since March citing a weaker economy in the face of U.S. President Donald Trump’s tariffs and ongoing uncertainty.
The bank cut its policy rate by 25 basis points, bringing it to 2.5 per cent.
In a press conference Wednesday morning, bank governor Tiff Macklem said the decision was a “clear consensus” among members of the governing council.
“The Canadian economy is adjusting to a different relationship with its biggest trading partner,” he said.
Currently, central bankers are not expecting a recession in Canada, but growth will be slow and “it’s not going to feel good,” cautioned Macklem.
He did not provide guidance on whether future cuts are coming this fall at its Oct. 29 announcement.
“We’re not being as forward-looking as normal,” Macklem said. “We’re paying close attention to the risks and uncertainties.”
In a note to clients, Scotiabank economist Derek Holt said he expects the bank to make another 25 basis points in the fourth quarter.
“The odds of being done after just one cut are pretty low in my view given the overall tone of the rest of the statement and the general pointlessness to grabbing a single chip out of the bag.”
The October announcement will land just days before Ottawa tables its federal budget on Nov. 4.
“Once we have the budget,” said Macklem, “we will be assessing the implications of the government’s plans on the economic outlook, what that means for growth, for inflation, and ultimately for what we need to do with interest rates.”
On Wednesday morning, Ontario Premier Doug Ford reacted to the rate cut news on social media platform X, saying, “Good. Now keep going.”
Macklem reiterated in the press conference that the central bank’s decisions are independent from the political process.
“They are evidence-based decisions,” he said. “That will continue. End of story.”
Before Wednesday’s decision, the Bank of Canada had kept its policy rate at 2.75 per cent for three consecutive meetings, citing ongoing inflation pressures and tariff-induced costs.
Now, with unemployment on the rise and economic activity contracting due to tariffs, economists have been calling on the bank to resume adding support to the economy.
Inflation data released Tuesday showed that prices rose by less than expected, supporting the argument for a cut.
“The inflation picture hasn’t really changed a great deal since where we were last January,” said Macklem.
The governor acknowledged that the removal of most retaliatory tariffs by Canada will help ease inflation pressures.
The bank said it will continue to assess how U.S. tariffs are impacting the economy as a whole, including business investment, employment and household spending.
It will also observe changes to consumer prices and how inflation expectations evolve.
“We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval,” Macklem said. “We will support economic growth while ensuring inflation remains well controlled.”
