The Bank of Canada lowered its policy rate by 25 bps to 2.25% in October 2025, citing weak growth, soft labor market conditions, and inflation near the 2% target as trade-related uncertainty continues to weigh on activity.

• The overnight rate target is now 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.2%. The decision reflects persistent economic slack and easing inflationary pressures.

• Canada’s GDP contracted -1.6% QoQ in Q2 2025, driven by falling exports and weak business investment linked to US trade actions. Growth is expected to remain subdued through year-end before gradually recovering.

• The Bank projects GDP growth of +1.2% in 2025, +1.1% in 2026, and +1.6% in 2027, with excess capacity absorbed only gradually as exports and investment improve.

• The labor market remains soft, with the unemployment rate steady at 7.1% in September. Job losses persist in trade-sensitive sectors such as autos, steel, aluminum, and lumber, while overall hiring remains weak.

• CPI inflation reached 2.4% YoY in September, slightly above expectations, while inflation excluding taxes stood at 2.9%. Core inflation measures have stayed around 3%, suggesting stickiness in underlying price pressures.

• Broader indicators point to underlying inflation near 2.5%, and the Bank expects headline CPI to remain close to the 2% target over the projection horizon.

• Globally, growth is slowing from about 3¼% in 2025 to roughly 3% in 2026–27, as trade tensions weigh on investment. US activity remains strong, supported by AI investment, though tariffs are lifting consumer prices.

• The Bank pointed to “ongoing weakness in the economy” and expectations that inflation would “remain close to the 2% target” as its motivations for cutting.

• The Bank emphasized that while monetary policy can support adjustment, structural damage from trade disruptions has reduced the economy’s capacity, limiting the scope for stimulus. It remains ready to adjust policy if the outlook deteriorates.

• Monetary Policy Report: October 2025