On Wednesday morning, the Bank of Canada (BoC) announced that they are cutting the policy rate to 2.50% for their July decision. This decision follows three consecutive holds from the central bank in April, June, and July.
The BoC has delivered a total of 225 basis points (bps) worth of cuts since June 2024, including half-point cuts in both October and December of last year.
Today’s decision comes on the heels of Statistics Canada’s Consumer Price Index reading for August, which showed a 1.9% year-over-year rise, up from a 1.7% increase in July.
“With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks. Looking ahead, the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity,” the Bank said in a statement.
“Governing Council is proceeding carefully, with particular attention to the risks and uncertainties. Governing Council will be assessing how exports evolve in the face of US tariffs and changing trade relationships; how much this spills over into business investment, employment, and household spending; how the cost effects of trade disruptions and reconfigured supply chains are passed on to consumer prices; and how inflation expectations evolve.”
Leading up to today’s announcement, economists with Canada’s ‘Big Five’ banks were forecasting a close call for the BoC. TD Economist Marc Ercolao wrote in a weekly update from Friday that markets were pricing a 90% probability of a quarter-point cut, “up from around 30% during the first half of August.”
“We’ve long argued that the BoC has reason to cut rates this year as ongoing trade uncertainty and loosening labour markets work to cool residual inflation pressures,” Ercolao added.
“However, an upside surprise to inflation readings may keep the BoC to the sidelines. Overall, recent data flows have more or less tracked the Bank’s forecast scenario consistent with a rising need for a further reduction in the policy rate. Whatever happens next week, we believe the BoC’s cutting cycle is nearing the end, with 2.25% policy rate — the bottom end of their neutral rate range — being the target.”
The next interest rate decision is scheduled for Wednesday, October 29. A full schedule for 2025 and 2026 can be found here.