It was the third consecutive rate cut by the central bank after the economy showed signs of slowing in June and July and inflation fell to 2.5 percent - within the bank's target range.
It had previously kept the interest rate at 5.0% for almost a year - its highest level in two decades.
"With broad inflationary pressures continuing to ease, the (Bank's) Board decided to cut the key interest rate by another 25 basis points. Excess supply in the economy continues to put downward pressure on inflation, while rising prices of housing and some other services are holding back inflation," it said.
Analysts, who forecast more rate cuts by the end of the year, expressed some surprise that the bank was not more aggressive this time.
"The Bank of Canada chose the more cautious approach of another quarter-point cut, leaving rates still well above where they need to be to get the economy moving again now that inflation is no longer as big a threat," CIBC Economics analyst Avery Schoenfeld said in a research note.
He forecasts two more 25-basis-point cuts this year to get to about 2.5% next year.
Desjardins analyst Royce Mendes forecasts a 50-basis-point cut at the bank's next meeting on Oct. 23, immediately followed by a 25-percentage-point reduction. | BGNES
