The Bank of Canada has reduced its benchmark interest rate to 2.25 percent, marking another effort to revive a weakening national economy. The decision reflects growing concerns over sluggish growth and a softening labor market. Analysts at RSM Canada have long argued that earlier rate reductions were necessary to counteract economic stagnation.
With employment and wage growth showing limited momentum, aggregate demand remains subdued, which in turn is expected to keep inflation moderate. The central bank is advised to base its decisions on forward-looking assessments rather than volatile short-term data. Inflation is unlikely to return to the sub-two percent range seen in previous years; instead, a target range of 2.5 to 3 percent appears more realistic given current conditions in food, fuel, and housing markets.
Although the Bank of Canada has signaled caution about additional cuts unless economic activity picks up by 2026, this stance may be overly conservative given domestic challenges. A rate reduction at the December meeting seems unlikely, but policymakers are not locked into a fixed trajectory.
Given potential global economic instability, clear communication from the central bank to the public, government officials, and investors is essential. The move underscores the need for flexible monetary policy in uncertain times.
RSM Canada continues to monitor developments and offers ongoing analysis through The Real Economy Canada, where readers can subscribe for updates.
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Bank of Canada cuts interest rate again in attempt to spur economy
Email n nLinkedin n nCanada’s economy is slowing to the point that the Bank of Canada was comfortable making another interest-rate cut on Wednesday as it lowered its policy rate to 2.25 per cent. n nFor some time, we have made the case that the Bank of Canada needed to get on with it and cut rates to get the country’s increasingly sluggish economy moving again. n nGoing forward, a lagging labour market should be a major focus for businesses and individuals after a second-consecutive interest rate cut. Should job and wage growth continue to proceed at a weak pace, soft aggregate demand should translate into a more modest pace of inflation. n nIt is important that the Bank of Canada provide a credible forward-looking forecast and not fall into the trap of being overly dependent on noise associated with high-frequency data. n nThe era of sub-two per cent inflation is firmly in the rearview mirror. It is better that the central bank makes policy decisions in light of what is likely to be inflation that resides in a range between 2.5 per cent and 3 per cent rather than set policy around current prices of food, gas and housing. n nWhile the Bank of Canada attempted to temper expectations of future rate cuts should the economy not reaccelerate into 2026, that may be a bit too conservative relative to the needs of the domestic economy. n nTherefore, there likely won’t be another rate cut at the December meeting—however, we do not believe that monetary policy is on a pre-set course. n nGiven the potential for further global economic disruption, it is wise that the Bank of Canada clearly communicate to both the public, policymakers and the investment community. n nRead RSM Canada’s latest analysis in The Real Economy Canada and subscribe for more updates. n nEmail n nLinkedin n nRelated posts n nCanada’s economy slowing as major free-trade renegotiation looms n nCanada’s subdued economic activity and the drop in inflation despite ongoing tariffs imply that the Bank of Canada could cut interest rates again this year. n nBank of Canada cuts interest rate to 2.5% amid economic, labour challenges n nThe Bank of Canada cut its key interest rate to 2.5 per cent as a slowing economy and rising unemployment likely contributed to the unexpected policy action. n nCanada’s economy in sore need of an interest rate cut as job losses mount n nCanada’s economy lost jobs in back-to-back months for the first time since 2021, pushing the odds of an interest rate cut this month significantly higher. n nBank of Canada expectations for the second half of 2025 n nThe Bank of Canada prioritizes price stability as a source of consistency and confidence in an uncertain environment. Here’s what to watch in the second half of 2025. n nBank of Canada cuts interest rate to 2.5% amid economic, labour challenges n nThe Bank of Canada cut its key interest rate to 2.5 per cent as a slowing economy and rising unemployment likely contributed to the unexpected policy action. n nBank of Canada cuts interest rate to 3.25% as focus shifts to gap with U.S. n nThe Bank of Canada lowered its interest rate to 3.25 per cent — an overdue move out of restrictive territory given that inflation has largely been tamed. Expect more rate cuts in early 2025 to get the economy… n nBank of Canada maintains interest rate at 5% n nThe Bank of Canada kept its policy rate unchanged at 5% for the fifth time in a row as it continued to wait for inflation to further moderate. n n@JoeBrusuelas n nJoe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer. n nA member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management’s Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia. In December 2023, Brusuelas and the economics team were recognized on Bloomberg’s list of Best Bond Forecasters after correctly predicting where the benchmark Treasury would end the year. n nBefore joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody’s Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.