The Bank of Canada has lowered its key overnight interest rate to 2.25%, as widely expected, suggesting this may mark the end of its rate-cutting cycle unless inflation or economic conditions shift significantly.
The 25 basis point cut the second in a row brings the rate to its lowest level since July 2022. Governor Tiff Macklem stated that the move was intended to help the economy cope with disruptions caused by U.S. trade tariffs while keeping inflation close to the 2% target.
In January, the central bank projected 1.8% GDP growth for both 2025 and 2026. However, it now forecasts 1.2% in 2025 and 1.1% in 2026, expecting a rebound to 1.6% in 2027, citing U.S. trade policy as a key factor.
“If inflation and economic activity evolve in line with our October projections, the Governing Council believes the current policy rate is appropriate to keep inflation near 2% while supporting the economy through this structural adjustment period,” the Bank said in its rate announcement.
Macklem added that the ongoing trade conflict has both weakened demand and increased costs for many businesses, though the bank expects these forces to balance out over time.
