The Bank of Canada has reduced its key interest rate by 25 basis points, bringing it down to 2.25 percent. This decision, announced on Wednesday, marks the fourth rate cut in 2025 and the second since March. The central bank's move aims to provide additional support to the economy amid rising unemployment and ongoing trade tensions.

The latest cut follows a peak rate of 5 percent in April 2024, which was implemented to combat high inflation. The Bank of Canada has been gradually lowering rates since then. With this reduction, Canadians with variable-rate loans, such as mortgages, are likely to see a decrease in their borrowing costs. Additionally, those seeking loans may find more favorable rates available.

Economists had anticipated this cut, citing a need for economic support. Desjardins economist Royce Mendes noted, "The reality is that the economy is in need of support. Outside of the pandemic, the unemployment rate is standing at its highest level since 2016."

Despite a recent uptick in inflation, experts pointed to rising unemployment and trade war anxieties as key factors influencing the Bank's decision. The Canadian economy has faced challenges, particularly from U.S. tariffs affecting industries such as steel, aluminum, and automotive.

The Bank of Canada will hold a press conference later today, where Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers will discuss the decision and its implications. The bank also released its quarterly report, which includes projections for inflation and economic growth, as well as an assessment of economic risks.

As the situation develops, the central bank's approach to monetary policy will be closely monitored, especially in light of the upcoming federal budget scheduled for November 4. This budget may outline fiscal measures to address the economic challenges posed by trade disruptions and inflationary pressures. The Bank of Canada has indicated that it will continue to adapt its monetary policy in response to evolving economic conditions.