Canada's central bank cut its key lending rate to 2.5% today, offering a boost to borrowers in an economy squeezed by US President Donald Trump's trade war.
The Bank of Canada had held its rate at 2.75% since March as it weighed the impact of Trump's fluctuating tariffs on Canadian businesses heavily dependent on exports to the US.
But the bank said there was clear evidence that Trump's protectionism was pinching the global economy.
"After remaining resilient to sharply higher US tariffs and ongoing uncertainty, global economic growth is showing signs of slowing," the bank said in a statement.
It noted that Canada's GDP declined 1.5% percent in the second quarter of 2025, "with tariffs and trade uncertainty weighing heavily on economic activity."
In the first quarter, exporters benefitted from a rush of orders from the US as businesses tried to stock up before Trump's tariffs fully took hold, the bank said.
But Canadian exports fell by 27% in the second quarter as rush orders eased.
Trump has so far maintained tariff exemptions on goods compliant with an existing North American free trade agreement, partly muting the damage to Canada's economy.
But punishing tariffs in key sectors - primarily cars, steel and aluminum - are causing damage.
"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 Bank of Canada said.
Canada was the first G7 country to begin cutting rates last year, following several hikes to tame pandemic-fueled inflation.
While today's cut was largely expected by analysts, the bank warned it would proceed cautiously, given the risk that US protectionism could drive up inflation for Canadian consumers.
The bank said it would be watching how "reconfigured supply chains are passed on to consumer prices and how inflation expectations evolve."
