Bank of Canada Interest Rate Announcement (September 17, 2025)

Bank of Canada cuts rates as labour market softens 

• The Bank of Canada (BoC) cut its policy rate to 2.50%, in line with market expectations. 
• The statement noted that “underlying inflation is running around 2.5%” and that the removal of retaliatory tariffs on imports from the U.S. “will mean less upward pressure on the prices of these goods going forward”. One notable inclusion was CPI excluding taxes once again receiving a call out (2.5% year-on-year).   
• The press conference opening statement noted that the labour market has softened, underlying inflation pressures have cooled, and the removal of retaliatory tariffs means there is “less upside risk to future inflation”.   
• Looking forward, emphasis will be place on examining how export growth evolves and the knock-on effects it will have on “business investment, employment and household spending”.

Key Implications

• The phrase that stood out is that “Governing Council is proceeding carefully, with particular attention to the risks and uncertainties”. This will help rein in market pricing from becoming overly aggressive on rate cut expectations. But, at the same time, we have long maintained this would not be a one-and-done scenario for the BoC.  
• Economic slack will persist, and the risks appear disproportionately on the downside, with little reason to believe there will be quick resolution to trade issues – particularly with the U.S. triggering the review of USMCA yesterday, well in advance of the timeline. 
• Officials have space to deliver another cut with core inflation metrics softening and the labour market showing visible strains. We look for the BoC to deliver another 25 basis points of easing at their next meeting in October. Beyond that, we’ll need to assess the state of the economy and overall environment. The ball goes into the government’s court with their Budget on November 4th. The BoC will factor in spending and other initiatives for the decision in December.

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