September 18, 2025

Hold onto your hats! The Bank of Canada just made a big move by cutting its key interest rate by 25 basis points to 2.5%—the first time since March! Why the sudden change? Governor Tiff Macklem pointed to a mix of trouble signs shaking Canada's money world. "Considerable uncertainty remains. 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 to CBC News. What’s got them worried? For starters, Canada’s economy took a hit in the second quarter. The GDP shrank as businesses pulled back on investments and exports, especially to the US, dropped since many companies had stocked up before US tariffs kicked in. These tariffs have a "profound effect" on Canadian giants like auto, steel, and aluminum industries. And it’s not just them—copper, lumber, canola, pork, and seafood sectors are feeling the heat from tariffs too. And if that’s not enough, over 100,000 jobs have disappeared in just two months! The unemployment rate jumped to 7.1%, a clear signal that the job market is feeling the pinch. Macklem explained, "Along with significant job losses in tariff-exposed sectors, employers in other industries have even pulled back on hiring as uncertainty plagues the Canadian economy." While consumer spending was stronger than expected in the second quarter, tough times ahead might change that picture. So what does this interest rate cut mean for you? It’s the Bank's way of trying to help the economy bounce back by making borrowing cheaper. With the economic clouds gathering, this 2.5% rate cut is a hopeful shot in the arm. Will Canada’s economy recover? Only time will tell, but the Bank of Canada is clearly ready to fight the slowdown with all it’s got!

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Tags: Bank of canada, Interest rate cut, Canadian economy, Unemployment, Gdp decline, Tariffs,