The Bank of Canada lowered its policy rate by 25 bps to 2.5% in September 2025, citing slower growth, weaker labor market conditions, and easing inflation momentum as trade disruptions continue to weigh on the outlook.

• Canada’s GDP fell about -1.5% QoQ in Q2 2025, with tariffs and uncertainty driving a sharp -27% drop in exports, reversing gains from Q1.

• Business investment also declined in Q2, while consumption and housing activity remained resilient, providing some offset.

• Employment has fallen in the past two months, with job losses concentrated in trade-sensitive sectors and overall hiring intentions weak.

• The unemployment rate rose to 7.1% in August, while wage growth has continued to ease.

• CPI inflation held at 1.9% YoY in August, with core measures around 3% in recent months, though monthly upward momentum has dissipated.

• Underlying inflation is estimated near 2.5%, and the removal of retaliatory tariffs is expected to reduce some price pressures.

• The Bank emphasized that risks remain tied to trade disruptions, their spillovers into investment and labor markets, and how supply chain shifts affect inflation dynamics.