According to reports, this is the second time this year that the Bank of Canada has slashed major rates to help the national economy, which has been already hit hard by low global oil prices.
The exchange rate for the Canadian dollar fell rapidly following the announcement, AFP reported.
"The Bank's estimate of growth in Canada in 2015 has been marked down considerably from its April projection," the Bank of Canada said in a statement.
Canada’s borrowing rates were already at their lowest historic level in an effort by the government to re-energize the country’s economy.
Concerns about the economic situation in Canada have been growing in past months.
Earlier this month, two major banks -- Nomura and Bank of America Merrill Lynch -- warned that the Canadian economy was heading for recession.
"The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities," the central bank said in its statement.
The statement added, "Real GDP (gross domestic product) is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation."
The bank, however, did not use the word "recession," though economists define recession as two consecutive quarters of economic contraction.