Canada Monetary Policy Research Brief

Rate cut aims to cushion trade-driven slowdown. The Bank of Canada reduced its overnight rate by 25 basis points to 2.25 per cent to support a struggling economy due to weaker exports, slowing business investment and persistent global trade uncertainty. The Bank noted that U.S. tariffs are reshaping supply chains and weighing on key Canadian industries such as autos, steel, aluminum and lumber, leading to a soft labour market and a 1.6 per cent annualized contraction in second quarter GDP. Although household and government spending remain sources of stability, overall growth is expected to stay muted through early 2026. With inflation holding near the 2.0 per cent target and underlying price pressures easing, policymakers judged that modest monetary easing could help offset the drag from trade disruptions and fiscal restructuring. That said, further rate cuts will depend on incoming data and inflation dynamics.