The central bank is focusing its attention towards the weakening economy
The Bank of Canada has stated that the inflationary risks to the economy are not entirely gone, according to the Financial Post.
During the central bank’s governing council’s most recent deliberations, members underscored how the lessening of the upside risks did not entail that it was fully gone.
“Trade disruptions implied new costs. How big these costs would be, when and where they might materialize, and what they could mean for inflation all remained uncertain,” the summary of the recent deliberations read.
The deliberations followed the Bank of Canada’s recent decision to cut the interest rate to 2.5% for the first time since March. Tiff Macklem, the governor of the central bank, stated that the inflationary pressures had diminished and the focus was now on Canada’s weakening economy.
According to the minutes, the governing council had discussed the option of keeping the policy rate at 2.75%. However, they decided to issue a rate cut due to the softening labour market, the reduced upward pressure on core inflation, and the decision to remove retaliatory tariffs on US goods by Prime Minister Mark Carney.
In Q2 2025, the economy contracted by 1.6% while exports dipped by 27%. The unemployment rate also reached 7.1% in August while 100,000 jobs were cut in July and August. The central bank also noted that the tariffs caused changes to the demand and supply, adding to the problem of assessing the slowing economy.
Another point of concern for the governing council was the uncertainty from the US trade policy as it can lead to the continuing weakness of the labour market across the economy as well as low business investment. As trading partners were preparing for a review of the Canada-United-States-Mexico-Agreement (CUSMA) next year, the uncertainty was expected to persist.
Meanwhile, the central bank is expecting to release it baseline projections for the economy with its monetary policy report in October, according to Reuters.
