Bank of Canada cuts key rate by 25 basis points to 2.25% amid slowing economy

By Mucahithan Avcioglu

ISTANBUL (AA) – The Bank of Canada lowered its benchmark overnight rate by 25 basis points on Wednesday, saying the country’s economy and labor market have continued to weaken.

The key rate now stands at 2.25%, its lowest level since June 2022, marking the second consecutive rate cut. The move aligned with market expectations for this meeting.

The bank rate and deposit rate were set at 2.5% and 2.2%, respectively.

In a statement, the central bank said the economy contracted by 1.6% in the second quarter, driven by falling exports and weak business investment amid growing uncertainty.

“Meanwhile, household spending grew at a healthy pace. US trade actions and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber,” it said.

The bank expects economic growth to remain weak in the second half of the year, before gradually recovering as consumer spending, government expenditure, and residential investment strengthen and exports and business investment begin to rebound.

The statement also said the labor market remains soft, with the unemployment rate steady at 7.1% in September and wage growth slowing.

“The Bank projects gross domestic product (GDP) will grow by 1.2% in 2025, 1.1% in 2026 and 1.6% 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,” it added.

- 2nd rate cut since March

The Bank of Canada made its first rate cut in four years in June 2024, becoming the first G7 central bank to begin easing monetary policy after aggressive rate hikes aimed at curbing inflation.

The bank has now cut its policy rate by a total of 225 basis points over seven consecutive meetings. It slashed rates in March, paused in April, and held steady through June and July before resuming cuts in September.

At its last meeting, the bank reduced the policy rate by 25 basis points.