**Bank of Canada Governor Tiff Macklem announced a rate cut on Sept. 17. / SCREENSHOT**

The Bank of Canada cut its trend-setting interest rate to 2.5% from 2.75% Wednesday in an effort to prop up an economy veering toward recession after six months of damaging U.S. tariffs.

“With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks” to the economy, Bank Governor Tiff Macklem said in a statement accompanying the announcement.

The bank was responding to recent economic data suggesting Canada is teetering on the edge of a recession. These reports had convinced most economists that Macklem, who had declined to reduce the BoC’s benchmark rate since March, would bring in a quarter-point cut this week.

GDP in the second quarter contracted by 1.6% and unemployment rose to 7.1% in August. At the same time, inflation in August, though slightly higher at 1.9 per cent, remained within the Bank’s preferred range. However, Macklem remains concerned about persistent core inflation even though the federal government’s elimination of most retaliatory tariffs has reduced inflationary pressure.

“Looking ahead, the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity,” Mcklem said.

He said the bank will continue to monitor the effects of the U.S. trade war. But given the expected ongoing negative impact of U.S. tariffs, some economists have also been predicting yet another rate reduction by Macklem before year-end.