Bank of Canada Cuts Policy Rate to 4.25%

By Paul Vieira

OTTAWA--The Bank of Canada on Wednesday cut its main interest rate for a third straight time, down a quarter point to 4.25%, and said it is worried about the risk that the economy is too weak and that inflation will slow too quickly.

In explaining the rate-cut decision, Bank of Canada Gov. Tiff Macklem said there is "little evidence" of broad-based inflationary pressure, adding further rate reductions could be in the offing so long as inflation continues to slow. The central bank sets interest rates to achieve and maintain 2% inflation. The latest data, covering July, indicated that inflation decelerated to 2.5% or a 40-month low.

"With inflation getting closer to the target, we need to increasingly guard against the risk that the economy is took weak and inflation falls too much," Macklem said, according to prepared remarks he's scheduled to deliver at a press conference Wednesday morning. "We care as much about inflation being below the target as we do above."

The last time the Bank of Canada cut interest rates in three consecutive decisions was in 2009, when the global economy was in a recession following a credit crisis.

Write to Paul Vieira at paul.vieira@wsj.com