Bank of Canada Cuts Interest Rate to 2.25% Amid Economic Slowdown, U.S. Tariffs Impact

The Bank of Canada cut its benchmark interest rate by 25 basis points to 2.25%, marking the second consecutive reduction amid ongoing economic challenges, including the structural impact of U.S. tariffs and trade conflicts. Governor Tiff Macklem emphasized that these tariff-induced structural changes are diminishing Canada's economic prospects and limiting the effectiveness of monetary policy to stimulate demand while keeping inflation near the 2% target. The central bank downgraded its GDP growth forecasts for 2025 and 2026, projecting slower growth and elevated unemployment, but expects inflation to ease due to factors like lower mortgage costs and economic slack. This rate cut aligns with similar moves by the U.S. Federal Reserve amid slowing economic activity and inflation pressures. The decision has been positively received in sectors like Canadian commercial real estate, with expectations of increased investment activity spurred by lower borrowing costs. Additionally, the Bank of Canada resumed detailed quarterly economic forecasts, signaling a cautious but transparent approach to navigating the ongoing economic transition towards trade diversification beyond dependence on the U.S. market.