Bank of Canada Lower Key Interest Rate to 2.25%

10:17 AM EDT, 10/29/2025 (MT Newswires) -- The Bank of Canada in a statement Wednesday said it had cut its target for the overnight rate by 25 basis points to 2.25%, and did so in =citing ongoing weakness in the economy. It said that if inflation and economic activity evolve "broadly in line" with the October projection, the current policy rate is at "about the right level" to keep inflation close to 2% while helping the economy through this period of structural adjustment.

The BoC noted Canada's economy contracted by 1.6% in the second quarter, due to lower exports and weak business investment, but 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, the Bank said.

The Bank projects GDP will grow by 1.2% in 2025, 1.1% in 2026 and 1.6% in 2027. In a quarterly basis, it said, 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.

The unemployment rate stayed at 7.1% in September and wage growth slowed. Slower population growth means fewer new jobs are needed to keep the employment rate steady, the Bank noted.

CPI inflation was 2.4% in September. The Bank's preferred measures of core inflation have been "sticky" around 3%. 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%, the bank said. The Bank of Canada expects inflationary pressures to ease in the months ahead and CPI inflation to remain near 2% over the projection horizon.

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