The Bank of Canada has cut its key interest rate by 0.25 percentage points.
In a widely expected move, the central bank announced this morning that its lending rate will now come down to 2.5 per cent.
That decision comes after the bank kept its rate at 2.75 per cent for three decisions in a row, going back to March.
In a summary of the decision, the bank explained: "With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks."
On Tuesday, Statistics Canada reported that Canada’s annual inflation rate was at 1.9 per cent in August, up from 1.7 per cent in July.
Earlier in the month, the agency released a gloomy jobs report that showed August’s unemployment rate was 7.1 per cent, up from 6.9 per cent in the previous month.
StatCan said there was a net loss of 66,000 jobs last month, with 1.6 million people counted as jobless.
That bleak news came shortly after the agency said the Canadian economy had shrunk 0.4 per cent – an annualized rate of 1.6 per cent – between April and June.
“After remaining resilient to sharply higher US tariffs and ongoing uncertainty, global economic growth is showing signs of slowing,” the Bank of Canada said in its summary released this morning.
It added: “Canada’s GDP declined by about 1½ per cent in the second quarter, as expected, with tariffs and trade uncertainty weighing heavily on economic activity. Exports fell by 27 per cent in the second quarter, a sharp reversal from first-quarter gains when companies were rushing orders to get ahead of tariffs.
“Business investment also declined in the second quarter. Consumption and housing activity both grew at a healthy pace.”
The bank also warned that, in the coming months, “slow population growth and the weakness in the labour market will likely weigh on household spending.”
Despite yesterday’s headline inflation figure of 1.9 per cent, the bank said that, according to its “preferred measures of core inflation,” the rate has been “around three per cent in recent months.”
On the bright side, however, “the upward momentum seen earlier this year has dissipated,” the bank added.
It also struck an optimistic note regarding the Liberal government’s decision to remove most of its much-vaunted counter-tariffs against the US. That “will mean less upward pressure on the prices of these goods going forward,” the bank explained.
The bank said it will be “proceeding carefully” amid the “risks and uncertainties” facing the economy during “this period of global upheaval.”
Its next rate decision is expected on Oct. 29.
