Bank of Canada Lowers Interest Rate to 2.25%
The Bank of Canada has lowered its key policy rate by 25 basis points to 2.25%, marking the ninth rate cut since the central bank began easing monetary policy. This move also brings the prime rate down to 4.45%, directly impacting variable-rate mortgages and home equity lines of credit (HELOCs) across the country.
Why the Rate Cut?
The decision comes amid ongoing signs of economic weakness and a more stable inflation outlook. Policymakers believe that lowering borrowing costs will help stimulate economic growth while keeping inflation close to the Bank’s two per cent target.
Bank of Canada Governor Tiff Macklem explained that these cuts are part of a broader effort to help the economy navigate a “period of adjustment.” Slower business growth, softer job numbers, and recent U.S. tariffs have placed additional pressure on Canadian exports and overall confidence.
“The weakness we’re seeing in the Canadian economy is more than a cyclical downturn—it’s also a structural transition,” Macklem noted, emphasizing the balance between supporting growth and keeping inflation in check.
How Tariffs Are Affecting the Economy
According to the Bank’s latest Monetary Policy Report, trade uncertainty and new tariffs from the U.S. have had a lasting negative effect on Canada’s economic activity.
In the second quarter of 2025, Canada’s GDP contracted by 1.6%, with exports dropping by around five per cent and major declines seen in steel, aluminum, and industrial machinery sectors. Business investment also fell as companies delayed spending amid uncertainty.
However, not all indicators were negative. Consumer spending increased—particularly in vehicle purchases—and residential investment rose as home sales and housing starts gained traction in several regions.
Inflation Outlook
Annual inflation rose slightly to 2.4% in September, largely due to higher gasoline and grocery prices, but core inflation (excluding volatile components) remains near the Bank’s target. Policymakers expect inflation to stabilize around 2% by early 2026, and they have indicated readiness to adjust policy again if conditions change.
What’s Ahead for the Economy
The Bank projects that the economy will remain on a slower growth path through 2026, largely due to the lingering effects of trade uncertainty. GDP growth is expected to average 1.4% in 2026 and 2027, with exports gradually recovering as global demand picks up.
Meanwhile, the federal government’s upcoming budget is expected to introduce targeted fiscal investments that could help offset some of the slowdown and stimulate domestic activity.
What This Means for Buyers and Sellers
For Buyers:
This latest rate cut makes borrowing slightly more affordable, particularly for those with variable-rate mortgages or lines of credit. Lower rates can reduce monthly payments and improve overall affordability, opening the door for more buyers who were previously priced out of the market. With additional cuts still possible, now could be a strategic time to secure a property before prices begin to adjust upward again.
For Sellers:
While lower rates may bring more buyers into the market, price growth could remain moderate as inventory levels stay healthy. Sellers who position their homes effectively with strong marketing, professional presentation, and the right pricing strategy will be best placed to capture serious buyer interest in this evolving landscape.
In today’s changing market, expert guidance matters more than ever. Whether you’re considering buying or selling, our team at Evolved Realty can help you navigate the opportunities created by these rate changes.