The Bank of Canada has lowered its target for the overnight rate by 25 basis points to 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
With the impact of U.S. trade actions on growth and inflation now clearer, the Bank has resumed providing projections for both the global and Canadian economies in its Monetary Policy Report (MPR). However, given ongoing uncertainty around U.S. trade policy, the outlook remains subject to a wider-than-usual range of risks.
Globally, the economy has shown resilience despite the historic rise in U.S. tariffs, but the strain is becoming more visible. Supply chains are being restructured, and persistent trade tensions continue to weigh on investment worldwide. According to the MPR, global growth is expected to slow from about 3.25% in 2025 to around 3% in 2026–27.
In the United States, growth remains strong, driven by surging AI-related investment. However, employment gains have slowed, and tariffs are pushing consumer prices higher. The euro area faces weaker exports and softer domestic demand, while China is offsetting lower U.S. exports with stronger trade elsewhere, though business investment has declined. Financial conditions globally have eased since July, oil prices have remained stable, and the Canadian dollar has slightly depreciated against the U.S. dollar.
Canada’s economy contracted by 1.6% in the second quarter, reflecting weaker exports and business investment amid ongoing uncertainty. Household spending, however, remains solid. Sectors such as autos, steel, aluminum, and lumber continue to feel the brunt of U.S. trade actions. As a result, GDP growth is expected to stay soft through the rest of the year, before gradually recovering as exports and business investment strengthen.
The labour market remains weak. Job gains in September followed two months of notable losses, and hiring remains subdued across most sectors. The unemployment rate held steady at 7.1%, with slowing wage growth. With slower population growth, fewer new jobs are needed to maintain stable employment levels.
The Bank projects GDP growth of 1.2% in 2025, 1.1% in 2026, and 1.6% in 2027, with activity strengthening gradually through 2026. Economic slack is expected to persist but narrow over time.
Inflation measured 2.4% in September, slightly above expectations, while core measures remain around 3%. Broader analysis of price trends suggests underlying inflation near 2.5%. The Bank expects inflation pressures to ease in the months ahead, keeping CPI inflation close to the 2% target through the projection horizon.
Given continued economic weakness and stable inflation near target, the Governing Council decided to lower the policy rate by 25 basis points. If economic conditions unfold in line with current projections, the Bank considers the policy rate appropriate to maintain price stability while supporting growth. The Council remains ready to adjust policy as needed, depending on how new data evolve.
The Bank notes that Canada is undergoing a difficult structural transition. The lasting effects of global trade conflicts have reduced the economy’s capacity and increased costs, limiting the role of monetary policy in stimulating growth without risking inflation. The Bank remains focused on preserving Canadians’ confidence in price stability through this period of adjustment.
Information Note:
The next scheduled policy rate announcement is December 10, 2025, and the next Monetary Policy Report will be released on January 28, 2026
Richard Wang 