The Bank of Canada cut interest rates by 25 basis points as expected, provided almost no guidance on future rate cuts, and said it is acting cautiously amid risks.

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As Canada’s economy and labor market are hit by U.S. tariffs, the Bank of Canada cut interest rates on Wednesday, lowering the benchmark overnight rate by 0.25 percentage points to 2.5%. This is the first rate cut since March and is in line with market and most economists' expectations.

However, the Bank of Canada remained silent on the future path of monetary easing. The statement provided almost no guidance on further rate cuts and removed the wording from the July meeting about “potential need for further cuts.” Officials indicated that future monetary easing would proceed cautiously and that the disruptive impact of changing trade patterns would continue to drag on economic activity while increasing costs.

Bank of Canada Governor Tiff Macklem said in his prepared remarks: “With economic weakness and reduced upside risks to inflation, the Governing Council believes a rate cut helps better balance future risks. There was clear consensus on this rate cut.”

Bank of Canada officials noted that economic pressures in the country are intensifying, including further softening in the labor market. They also said that Prime Minister Mark Carney’s removal of certain retaliatory tariffs on U.S. goods has eliminated a potential source of inflation.

After the Bank of Canada’s rate decision was announced, the Canadian dollar fell to the day’s low against the U.S. dollar, with 1 USD buying 1.3763 CAD. Canadian government bonds were steady across maturities, with the two-year yield virtually unchanged at 2.46%. Overnight swap traders continued to fully price in the possibility of another rate cut in this cycle, with about a 50-50 chance seen for another cut in October.

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