The Bank of Canada has lowered its interest rate by 25 basis points to 2.25%, the second cut since March, but cautioned that monetary policy can't fix the structural economic damage caused by the U.S. trade war.

Ottawa

The Bank of Canada has cut its key interest rate by 25 basis points, bringing it down to 2.25%. Governor Tiff Macklem stated that the decision reflects ongoing economic weakness and structural adjustments, particularly due to the impact of the U.S. trade conflict and tariffs, which have reduced Canada's economic prospects and productive capacity.

Despite inflation remaining above the 2% target at 2.4%, the central bank is prioritizing economic support, expecting inflation to cool over time. The rate cut aims to stimulate the economy by making borrowing cheaper, though it will also lower returns for savers. The bank indicated that no further cuts are expected this year unless there are significant changes in economic conditions.

Bank of Canada cuts key interest rate to 2.25%

But let's first begin with that breaking news from the Bank of Canada. It has cut its key interest rate by 25 basis points, bringing it down to 2.25%. The bank's governor, Tiff Macklem, has just been speaking about the decision to reporters in Ottawa. This was our second straight cut and reflects ongoing weakness in the economy and contained inflationary pressures. The weakness we're seeing in the Canadian economy is more than a cyclical downturn. It's also a structural adjustment. The U.S. trade conflict has diminished Canada's economic prospects. The structural damage caused by tariffs is reducing the productive capacity of the economy and it's adding costs. And the CBC's Nisha Patel was watching that news conference. She joins me now. Okay, so Nisha, despite inflation being over the 2% target, we heard this news of a rate cut and we heard more details too from the Bank of Canada's governor. What stood out to you? Yeah, the Bank of Canada seems less concerned about inflation at this point, Arati. Even though it's at 2.4% above target, the central bank seems to think it will cool throughout the rest of the year and the clear priority right now is the economy, which of course is being hammered by the trade war with the U.S. GDP shrank in the second quarter, likely to stay weak throughout the end of the year, may pick up a little bit next year, but we are seeing job losses, investments being frozen across certain sectors, including steel, autos, the forestry sector. And so this rate cut really is to kind of kickstart the economy a little bit. Lower interest rates make borrowing money cheaper and so anyone with a variable rate mortgage or a line of credit gives them a little bit more room, a little bit more confidence to spend and they spend that money throughout the economy. It is not great for savers though, if you have a high interest savings account and you've been loving those really high returns on that, that will get a little bit lower as well. So a little less return on that as rates go down, but it looks like that's where we're at, 2.25%. And we've seen sort of an evolution of attitude perhaps from the Bank of Canada Governor over the course of the year as this country and the economy continues to deal with trade. We're expecting one more announcement in December. How do we think things are going to pan out to that point? Well, the central bank governor really giving a clear signal today that it seems like interest rate cuts are done for now. The signal from the central bank saying that if the inflation and the economy continue down the path that they projected, that this is the right level for interest rates. So likely no more cuts this year unless something crazy happens with the economy and they are prepared to respond for that. We are also going to hear from the US Federal Reserve today. They are also likely to cut interest rates. But really, you know, the other interesting thing from the central bank are the talking about how there's this real structural shift for the Canadian economy that this trade war has caused a big change in how we do business with our biggest trading partner, the United States. And this is something that businesses are really going to have to strategize and live with as probably a long-term future. Okay. Thank you for this, Nisha. That is the CBC's Nisha Patel reporting for us here in studio.

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