In a move widely expected by economists, the

Bank of Canada

cut its benchmark

interest rate by 25 basis points

to 2.5 per cent on Wednesday, amid a “weaker economy and less upside risk to inflation.”

“After remaining resilient to sharply higher U.S. tariffs and ongoing uncertainty, global economic growth is showing signs of slowing,” the central bank said in a statement.

Here’s how economists responded to the central bank’s decision, along with their outlook on future rate cuts.

‘Relatively cautious tone’ on trade policy: Capital Economics

“The Bank of Canada’s decision to cut by 25 basis points today was of little surprise following the recent softer

labour market

data and easing of upside inflation risks, although the relatively neutral tone of the central bank’s policy statement suggests that it is not necessarily expecting to cut rates again in October,” Stephen Brown, deputy chief North America economist at Capital Economics Ltd., said in a note.

Brown pointed out that the central bank dropped a line from its previous policy statement, which said there may be a need to reduce rates further “if a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained.”

However, the Bank of Canada reiterated in a press release that it would keep an eye on four areas: “How exports evolve in the face of U.S. tariffs and changing trade relationships; how much this spills over into business investment, employment, and household spending; how the cost effects of trade disruptions and reconfigured supply chains are passed on to consumer prices; and how inflation expectations evolve.”

“That leaves the door (open) to another interest rate cut this year if, as we expect, economic growth remains weak while core inflation pressures remain under control,” Brown said.

‘Likely more cuts to come’: Rosenberg Research

“The Bank of Canada’s confidence level that

inflation is back

on a downward path has increased substantially in recent weeks,” David Rosenberg, founder and president of Rosenberg Research & Associates Inc., said in a note.

“At the same time, the markdown on the overall assessment of the economic backdrop and outlook was underscored by the fact that the terms ‘weak,’ ‘soft,’ and ‘slow’ were used no fewer than ten times, double the number from the last meeting six weeks ago.”

Rosenberg said there were several “not-so-subtle shifts” in tone in the central bank’s statement accompanying the decision.

“For one, the prior commentary on how the global economy had been ‘resilient’ was marked down to ‘slowing,’” Rosenberg said. “And for the United States, the central bank also revised down its assessment, especially with respect to the labour market, which is now seen as having ‘slowed’ compared to being ‘solid’ just six weeks ago.”

Canada, meanwhile, “is going to need all the help it can get,” said Rosenberg, who expects more rate cuts to come and added that in the past five Bank of Canada easing cycles over the last 25 years, “not once did the central bank stop north of two per cent.”

He also said that high uncertainty was no longer a constraint on the Bank of Canada as it was through the spring and summer. “As

Jay Powell

put it last December, elevated uncertainty is akin to walking in a dark room with furniture, which means that the central bank stands still so as not to get tripped up. Well, someone turned on a lamp for Tiff Macklem today,” he said.

‘Slightly stimulative position’: Oxford Economics

The central bank justified the cut “by focusing on the mounting evidence that the economy is softening and upside risks to inflation have eased,” Tony Stillo, director of Canada economics at Oxford Economics, and senior economist Michael Davenport, said in a note.

“The statement also emphasized that although underlying inflation remains in the mid two per cent range and uncertainty persists, lower Canadian counter tariffs have reduced the upside risks to inflation enough for the Bank of Canada to be comfortable easing policy.”

However, the central bank “struck a somewhat cautious tone” in its statement. “It stressed that still elevated trade policy uncertainty and the ongoing risks to inflation from potential supply chain issues and higher costs due to the trade war mean that it must remain less forward-looking than usual,” Stillo and Davenport said.

The rate cut brings monetary policy into “slightly stimulative position in our view,” they said, but still within the Bank of Canada’s neutral range of 2.25 per cent to 3.25 per cent. However, the economists don’t see this as the beginning of a new cutting cycle in which rates “fall deeply into stimulative territory.”

“The central bank remains in a bind as it weighs the upside risks to inflation against the downside risks to growth from the trade war,” they said. “Moreover, major fiscal stimulus is likely to be laid out in the federal budget this fall, which will do most of the heavy lifting to support the economy in the near term.”

Rate cut not a ‘one-and-done scenario’: TD Economics

In a note on Wednesday, Andrew Hencic, director and senior economist at TD Economics, said one phrase in the Bank of Canada statement stood out: “Governing Council is proceeding carefully, with particular attention to the risks and uncertainties.”

“This will help rein in market pricing from becoming overly aggressive on rate cut expectations,” Hencic wrote. “But, at the same time, we have long maintained this would not be a one-and-done scenario for the central bank.”

Hencic said “risks appear disproportionately on the downside” for economic slack to persist. He added that there is “little reason to believe there will be quick resolution to trade issues,” especially after the U.S. initiated an early review of the

Canada–United States–Mexico Agreement (CUSMA)

ahead of the 2026 timeline.

Hencic said the Bank of Canada has space to trim rates further “with core inflation metrics softening and the labour market showing visible strains,” and expects another 25-basis-point cut at the next announcement on Oct. 29.

“The ball goes into the government’s court with their budget on November 4,” he said. “The Bank of Canada will factor in spending and other initiatives for the decision in December.”

‘Modicum of optionality’ around path forward: RSM Canada

“A weaker economy, growing labour slack and softer oil prices created the conditions under which the central bank can confidently look through a likely short-term increase in inflation,” Joseph Brusuelas, chief economist at RSM Canada, said in a note. “This also sets the stage for future rate cuts to provide accommodation for Canada’s economy.”

Brusuelas said the fact that the effective tariff rate on Canadian exports to the U.S. is three per cent suggests that Canada’s economy has issues “beyond trade tensions” and the upcoming CUSMA renegotiation, which likely factored into the decision to cut rates.

“However, the specific mention of potential inflation risks from global protectionism and tariffs denotes a bit of caution by the Bank of Canada going forward — along with the potential rate path,” Brusuelas wrote.

Brusuelas said the central bank’s lack of forward guidance creates a “modicum of optionality” around the future path for monetary policy.

“It’s clear that a weaker labour market and the likely return of inflation to at or below two per cent are in the process of creating the necessary policy space for the central bank to cut its policy rate at least one more time — and possibly more — going forward,” Brusuelas wrote.

• Email: jswitzer@postmedia.com