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The Bank of Canada today reduced its target for the overnight rate by 25 basis points to 2.25 per cent, with the Bank Rate at 2.5 per cent and the deposit rate at 2.20 per cent.

With the effects of U.S. trade actions on economic growth and inflation somewhat clearer, the Bank has returned to its usual practice of providing a projection for the global and ºÃÉ«tv economies in this Monetary Policy Report (MPR). Because U.S. trade policy remains unpredictable and uncertainty is still higher than normal, this projection is subject to a wider-than-usual range of risks.

While the global economy has been resilient to the historic rise in U.S. tariffs, the impact is becoming more evident. Trade relationships are being reconfigured and ongoing trade tensions are dampening investment in many countries. In the MPR projection, the global economy slows from about 3.25 per cent in 2025 to about three per cent in 2026 and 2027.

In the United States, economic activity has been strong, supported by the boom in AI investment. At the same time, employment growth has slowed and tariffs have started to push up consumer prices. Growth in the euro area is decelerating due to weaker exports and slowing domestic demand. In China, lower exports to the United States have been offset by higher exports to other countries, but business investment has weakened.  Global financial conditions have eased further since July and oil prices have been fairly stable. The ºÃÉ«tv dollar has depreciated slightly against the U.S. dollar.

Canada’s economy contracted by 1.6 per cent in the second quarter, reflecting a drop in exports and weak business investment amid heightened uncertainty. Meanwhile, household spending grew at a healthy pace. U.S. trade actions and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber. As a result, GDP growth is expected to be weak in the second half of the year. Growth will get some support from rising consumer and government spending and residential investment, and then pick up gradually as exports and business investment begin to recover.

Canada’s labour market remains soft. Employment gains in September followed two months of sizable losses. Job losses continue to build in trade-sensitive sectors and hiring has been weak across the economy. The unemployment rate remained at 7.1 per cent in September and wage growth has slowed. Slower population growth means fewer new jobs are needed to keep the employment rate steady.

The Bank projects GDP will grow by 1.2 per cent in 2025, 1.1 per cent in 2026 and 1.6 per cent in 2027. On a quarterly basis, growth strengthens in 2026 after a weak second half of this year. Excess capacity in the economy is expected to persist and be taken up gradually.

CPI inflation was 2.4 per cent in September, slightly higher than the Bank had anticipated. Inflation excluding taxes was 2.9 per cent. The Bank’s preferred measures of core inflation have been sticky around three per cent. Expanding the range of indicators to include alternative measures of core inflation and the distribution of price changes among CPI components suggests underlying inflation remains around 2.5 per cent. The Bank expects inflationary pressures to ease in the months ahead and CPI inflation to remain near two per cent over the projection horizon.

With ongoing weakness in the economy and inflation expected to remain close to the two per cent target, Governing Council decided to cut the policy rate by 25 basis points. If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to two per cent while helping the economy through this period of structural adjustment. If the outlook changes, we are prepared to respond. Governing Council will be assessing incoming data carefully relative to the Bank’s forecast.

The ºÃÉ«tv economy faces a difficult transition. The structural damage caused by the trade conflict reduces the capacity of the economy and adds costs. This limits the role that monetary policy can play to boost demand while maintaining low inflation. The Bank is focused on ensuring that ºÃÉ«tvs continue to have confidence in price stability through this period of global upheaval.

This report by ºÃÉ«tvwas first published Oct. 29, 2025.