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What changed: On September 17, 2025, the Bank of Canada lowered its policy interest rate by 25 basis points, from 2.75% to 2.50%. This is the first rate cut in six months and brings the rate to its lowest in three years.
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Why they did it:
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The job market has weakened significantly, with over 100,000 jobs lost in just a couple of months, pushing unemployment to a multi-year high.
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Inflation pressures are easing, especially underlying inflation. Some of the factors loosening inflation risk include the removal of many retaliatory tariffs.
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Economic growth is soft; the Canadian economy contracted in the second quarter and faces risks from global trade tensions and weak external demand.
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What it signals:
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The Bank is becoming more cautious (“data-dependent”) and is willing to cut further if economic risks worsen.
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They are balancing two goals: keep inflation anchored, but also support the economy in the face of weakening job and growth numbers.
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Impacts:
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For borrowers: This could somewhat ease borrowing costs (e.g. variable-rate loans and mortgages), but the full effect depends on how lenders react.
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For savers: Lower rates mean less return on savings accounts and fixed income.
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For businesses: Might help stimulate investment and spending, especially as inflation eases and trade uncertainty lessens.
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What ahead: Many analysts think there might be another cut later in the year if the economy continues to show signs of weakness.
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