Bank of Canada Cuts Overnight Rate by 25 Basis Points to 2.25%, Citing Weaker Growth

The Bank of Canada reduced its overnight target rate by 25 basis points to 2.25% on 29 October 2025, bringing the policy rate to the lower bound of what the central bank considers its neutral range. The Governing Council cited ongoing weakness in the economy and inflation expected to remain close to the 2% target as the principal factors behind the decision. The decision was published in a press release on the Bank of Canada's website following the conclusion of the scheduled rate-setting meeting.

The move placed the overnight rate at the lower edge of the range the Bank of Canada judges to be neither stimulative nor restrictive—a level at which monetary policy is broadly neutral for the Canadian economy.

ECONOMIC CONDITIONS

The Bank of Canada's statement pointed to ongoing weakness in the economy, hit by US trade actions, as a primary motivation for the October cut. The economy contracted by 1.6% in the second quarter on a drop in exports and weak business investment, although household spending grew at a healthy pace. The central bank indicated it was monitoring these developments carefully and stood ready to adjust its assessment as new data emerged.

CPI inflation was 2.4% in September, slightly higher than the Bank had anticipated, but the Bank expects inflation to remain near 2% over the projection horizon. The 25 basis point move matched the size of its September cut.

The statement acknowledged that the global backdrop remained uncertain and that the Canadian economy faced risks on multiple fronts. The Bank projected GDP growth of 1.2% in 2025, 1.1% in 2026 and 1.6% in 2027.

OUTLOOK

The Governing Council said that if inflation and economic activity evolve broadly in line with its October projection, it sees the current policy rate at about the right level, while standing ready to respond if the outlook changes.