Bank of Canada says ‘weaker’ economy led to September rate cut

The Bank of Canada said last month's rate cut was as the result of the country's weakening economy amid the trade war and removing most retaliatory tariffs.

A weakening economy and the removal of most retaliatory tariffs helped convince the Bank of Canada that a cut to its key policy rate was warranted.

The Bank of Canada released its summary of deliberations on Wednesday from the meeting ahead of its Sept. 17 decision to cut its benchmark rate by a quarter-percentage point to 2.5 per cent.

The central bank said it considered holding the rate steady but there were three determining factors in favour of a lower rate. Those were a weakening economy with a softening labour market, signs that pressure on core inflation could be easing and the removal of most retaliatory tariffs by the federal government.

“In reviewing all these factors, governing council judged that the balance of risks had shifted in favour of cutting the policy rate. The economy was weaker and, while there were still some mixed signals, inflationary pressures appeared more contained,” the summary reads.

It noted that the economy contracted in the second quarter as tariffs and trade uncertainty took a toll.

Real gross domestic product declined 1.6 per cent on an annualized basis in the second quarter, Statistics Canada data showed, driven by a sharp drop-off in exports and business investment.

“Businesses reported that they are in a wait-and-see mode, given the unpredictability of U.S. trade policy,” the summary said.

During the central bank’s deliberations, it also weighed the latest inflation figures, released a day before its rate announcement.