Bank of Canada Cuts Key Rate to 2.5% Amid Weak Economy

The Bank of Canada lowered its benchmark interest rate by 0.25 percentage points on September 17, bringing the overnight rate to 2.5%. This is the first rate cut in six months and comes as the central bank tries to support a slowing economy.

Canada’s GDP contracted by about 1.5% in the second quarter, and job losses have been mounting, particularly in industries exposed to global trade pressures. Unemployment has edged higher, signaling weakness in the labour market.

At the same time, inflation has eased. While still near the upper end of the Bank’s 2% target range, momentum has cooled, giving policymakers more room to cut. Trade tensions and tariffs continue to weigh on exports and business investment, adding to the uncertainty.

Looking ahead, the Bank of Canada said it remains ready to cut rates further if conditions worsen. But with population growth slowing and consumers facing headwinds, policymakers warned that household spending may stay subdued.

The rate cut could ease borrowing costs for mortgages, loans, and businesses, but it also means savers will see lower returns. The central bank will continue to balance the risks of sluggish growth against the need to keep inflation under control.