Bank of Canada Cuts Rates to 2.5%, Ready to Cut Again If Risks Rise

• The Bank of Canada reduced its key policy rate to a three-year low of 2.5% on Wednesday, the first cut in six months, and said it would be ready to cut again if risks to the economy increased in the coming months.
• The 25-basis-point cut reflected a weak jobs market and less concern about underlying pressures on inflation, the bank said. It paused its easing campaign in March after reducing rates by a total of 225 basis points in nine months, starting in June last year.
• Bank of Canada Governor Tiff Macklem said the damaging effect of U.S. tariffs meant considerable uncertainty remained. "But 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 going forward," he said in opening remarks to reporters.
• The cut was a unanimous decision of the seven-member Governing Council, Macklem said. The last time the key rate hit 2.50% was in July 2022. The economy initially held up reasonably well in the face of tariffs in some critical sectors. But in the last two months, the job market has slumped, losing more than 100,000 positions. The unemployment rate is at a nine-year high, excluding the COVID-19 pandemic years.
• The bank's next rate announcement is on October 29, followed by another one in December. While economists are widely expecting another rate cut before the end of the year, money markets are not factoring in more easing in 2025.

(Source: Reuters)