Bank of Canada Cuts Key Rate

OTTAWA. — The Bank of Canada has lowered its key interest rate to 2.25%, but hinted that further cuts may not be coming soon.

Governor Tiff Macklem said the rate is now “about right” to keep inflation near the 2% target while helping the economy cope with the impact of U.S. tariffs.

Economists widely expected the move: economic growth is slowing, though inflation remains under control. Macklem said tariff-related pressures are being offset by weaker overall activity but noted that monetary policy has its limits:

“Interest rates can’t help companies find new markets or rebuild supply chains. What they can do is cushion the blow for the rest of the economy,” he said.

In its latest forecast, the bank projects GDP growth of 0.5% in the third quarter and 1% in the fourth. Over the next two years, growth is expected to average 1.4%, with trade disruptions reducing Canada’s economic output by 1.5% by 2026 compared with pre-tariff projections.

Macklem warned that unless productivity improves, Canadians’ standard of living will fall:

“If we don’t make changes, our national prosperity will be lower than it could have been.”

Regions dependent on tariff-hit industries — steel, aluminum, and lumber — are expected to struggle the most. Still, analysts predict growth could rebound by 2027 if Ottawa secures a deal with Washington.

Currently, U.S. tariffs on Canadian goods average about 6%, while Canada’s countermeasures sit around 1%. U.S. policy remains volatile — President Trump recently halted trade talks and threatened another 10% tariff on Canadian exports.

The Bank of Canada said it will stay alert and adjust policy if needed. Economists believe there could be one more minor cut in 2026, but the upcoming federal budget is expected to take the lead in supporting the economy.