On Wednesday, September 17, The Bank of Canada reduced its target for the overnight rate by 25 basis points to 2.5% — the first cut in six months. The announcement was much anticipated across the country, coinciding with the start of the typical fall market across Ontario. This announcement is expected to contribute to existing increased market activity, giving buyers more buying power as well as some hope, with another interest rate announcement expected before the end of the calendar year.
This is a summary of the announcement:
Global Economic Overview
- Global growth is slowing after showing resilience to US tariffs and uncertainty.
United States
- Business investment remains strong.
- Consumer spending is cautious; employment gains are slowing.
- Inflation rising — tariff costs being passed to consumers.
Euro Area
- Growth moderating due to impacts from US tariffs.
China
- Economy held up in H1, but growth softening as investment weakens.
Global Markets
- Oil prices stable, near July MPR assumptions.
- Financial conditions easing: higher equity prices, lower bond yields.
- Canadian dollar stable vs. US dollar.
Canadian Economic Update
- Q2 GDP fell ~1.5%, as expected.
- Tariffs & trade uncertainty weighed heavily.
- Exports dropped 27% (vs. strong Q1 gains due to front-loading).
- Business investment declined.
- Consumption & housing grew at a healthy pace.
- Outlook: Slow population growth & weak labour market may dampen household spending.
Labour Market Trends
- Employment declined over past 2 months (since July MPR).
- Job losses concentrated in trade-sensitive sectors.
- Broader employment growth slowing (reflecting weak hiring intentions).
- Unemployment rate rose to 7.1% in August (up from March).
- Wage growth continues to ease.
Inflation Trends
- CPI inflation at 1.9% in August (unchanged from July MPR).
- Excluding taxes: 2.4%.
- Core inflation measures: ~3%, but monthly momentum has slowed.
- Broader indicators suggest underlying inflation ≈ 2.5%.
- Retaliatory tariffs removed → should reduce future price pressures on US imports.
Policy Decision & Outlook
- Bank of Canada lowered policy rate:
- Reason: Weaker economy + less upside inflation risk.
- Trade disruptions still expected to:
- Add costs.
- Weigh on economic activity.
- Governing Council priorities:
- Monitor exports, investment, employment, household spending.
- Assess cost pass-through of supply chain changes.
- Track inflation expectations.
Bank of Canada’s Focus
- Ensure confidence in price stability during global uncertainty.
- Support economic growth while keeping inflation well-controlled.
Key Upcoming Date
- Next rate announcement: October 29, 2025
- October Monetary Policy Report to be released the same day.
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