ISTANBUL

The Bank of Canada slashed its benchmark overnight rate on Wednesday by 25 basis points, with the central bank saying that the global economy is showing signs of slowing as US tariffs raised uncertainty.

The key overnight lending rate now stands at 2.5%, its lowest since June 2022.

The interest rates of the bank rate and the deposit rate stand at 2.75% and 2.45%, respectively.

"After remaining resilient to sharply higher US tariffs and ongoing uncertainty, global economic growth is showing signs of slowing. In the United States, business investment has been strong but consumers are cautious and employment gains have slowed," a bank statement said.

It noted that the US businesses seem to be passing on some tariff costs to consumer prices, which has led to an increase in US inflation in recent months and due to the impact of US tariffs on trade, growth in the euro area has slowed.

The bank said that Canada's gross domestic product (GDP) fell by approximately 1.5% in the second quarter as US tariffs and trade uncertainty weighed on economic activity, and that employment had fallen in the last two months.

"Job losses have largely been concentrated in trade-sensitive sectors, while employment growth in the rest of the economy has slowed, reflecting weak hiring intentions. The unemployment rate has moved up since March, hitting 7.1% in August, and wage growth has continued to ease," the bank said.

It said that consumer inflation was 1.9% in August, and core inflation indicators have hovered around 3% in recent months, with headline inflation around 2.5%.

"With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to balance the risks better," the bank added.  

1st cut since March

Last June, the Bank of Canada initiated its first interest rate cut in four years. With this move, it became the first central bank among the G7 countries to begin easing policy following aggressive interest rate hikes to curb inflation.

The bank, which has cut its policy rate by a total of 225 basis points in seven consecutive meetings, last cut in March of this year.

It had paused interest rate cuts at its April meeting and held the policy rate steady in June and July.