The Bank of Canada cut its overnight interest rate to 2.25% as expected, its second straight cut to support an economy battered by U.S. tariffs. The bank also signaled that the rate-cutting cycle may be coming to an end, unless there is a significant change in inflation or growth.
Governor Tiff Macklem said the easing was aimed at helping the economy adjust to trade pressures while keeping inflation near its 2% target. He explained that the negative impact on demand and business operating costs is expected to offset each other.
The BoC now expects economic growth of 1.2% in 2025 and 1.1% in 2026, down from its previous forecast of 1.8%, with a recovery only expected in 2027. The Canadian economy contracted 1.6% in the second quarter and may expand only slightly in the third quarter.
The bank expects growth of 0.5% in the third quarter and 1% in the fourth quarter, with inflation averaging around 2% this year and 2.1% in 2026. Macklem noted that uncertainty over US trade policy makes economic forecasts more difficult and open to further adjustments.
Following the announcement, the Canadian dollar strengthened 0.22% to 1.3915 against the US dollar. Markets are now not expecting any additional rate cuts until at least March 2026.
