The Bank has held its policy rate at 2.75 per cent since the March interest rate decision. REUTERS/Blair Gable ·REUTERS / Reuters
The Bank of Canada cut its benchmark interest rate by 25 basis points on Wednesday to 2.5 per cent, the first move since March and one widely expected as the economy shows more signs of strain.
Policymakers pointed to a weakening labour market, fading inflation momentum and the removal of retaliatory tariffs in explaining the decision. But they offered little sense of what comes next, with Governor Tiff Macklem acknowledging the Bank is “being less forward-looking than usual.”
That caution stood out to economists, who noted the omission of July’s reference to “the potential for further easing.” Scotiabank’s Derek Holt calls the Bank’s language “careful, cagey, non-committal, and spoken in riddles.”
Nonetheless, most say more cuts seem likely, though not guaranteed, with the timing hinging on incoming data and the fall budget. For Canadians, Wednesday’s announcement means lower borrowing costs now, with the prospect of further relief if the economy continues to weaken.
“We think additional easing from the BoC is likely — the central bank today clearly laid out concerns about the economy, and in the past has rarely cut interest rates just once,” RBC economist Claire Fan said, reversing the bank’s earlier call that the easing cycle was over.
We are not expecting a recession.BoC governor Tiff Macklem, on the current economic context
This was the BoC’s first rate cut since March and its third for the year after a pause through the spring and summer. The Bank notes that the Canadian economy weakened in the second quarter as tariffs and trade uncertainty weighed heavily on activity. It points to job losses in trade-sensitive sectors and slower hiring elsewhere as evidence the labour market has softened. On inflation, policymakers say upward pressures that had built earlier this year have dissipated, with underlying measures now running around 2.5 per cent.
Macklem says that the central bank still expects growth to remain positive, even if slow. Under the current scenario, he says, “we are not expecting a recession,” adding that the BoC hopes to return to a single base-case projection in October if stability in U.S. tariffs holds — following two Monetary Policy Reports that offered multiple scenarios.
Inflation pressures, he says, “look a little more contained,” helped by the federal government’s removal of most retaliatory tariffs, which Macklem notes “takes some of the upside risk off future inflation.”
Economists broadly agree the cut was no surprise, but their interpretations of the BoC’s cagier tone vary, with less consensus about another cut next month. BMO chief economist Douglas Porter argues that the Bank’s language suggests the BoC is “not keen to provide a follow-up cut,” projecting that reductions are more likely in December and March 2026.
National Bank economist Taylor Schleich projects an October cut, noting that a single cut is extremely rare. “Conventional wisdom says that if you’re going to cut once, you’re probably going to go again,” he said.
Economists also point to the neutral range as context for the cut. Schleich says the policy rate, at 2.5 per cent, “is now in the lower half of the Bank’s estimated neutral range,” an observation also made by RBC’s Fan. Both suggest that this positioning gives the BoC room to ease further if the economy weakens, while also signalling that the range for additional cuts is not unlimited.
The Bank’s next rate decision is on October 29 alongside a full Monetary Policy Report, with the federal budget following just a week later on November. 4. Between now and then, key data releases — including the September labour force survey, inflation figures, and the Q3 Business Outlook Survey — will shape the outlook.
Macklem says the BoC will continue to “proceed carefully, with particular attention to the risks and uncertainties” and stresses the priority of ensuring Canadians “continue to have confidence in price stability.”
Follow Yahoo Finance Canada’s live blog for news, updates and analysis of the Bank of Canada’s interest rate announcement below.
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Canadian banks lower prime rates following BoC cut
Canadian banks reduced their prime rates Wednesday afternoon after the Bank of Canada cut its benchmark interest rate by 25 basis points.
RBC, BMO, TD, and CIBC each lowered their prime rates by 25 basis points, from 4.95 per cent to 4.7 per cent. The new rates are effective September 18.
Scotiabank is expected to follow.
The prime rate is the annual interest rate that banks and financial institutions use to set interest rates for variable-rate mortgages, lines of credit, and some other loans.
Royal Bank the first to lower its prime rate
RBC Royal Bank announced a decrease to its prime rate by 25 basis points following the Bank of Canada’s policy rate cut, bringing it to 4.7 per cent from 4.95 per cent. The new rate is effective September 18.
Canada’s other major banks are expected to follow suit this afternoon.
Housing sector needs stronger signal of further cuts: Fitzrovia CEO
Fitzrovia’s CEO said further easing needs to be accompanied by fiscal stimulus for the housing sector. (Photo by Roberto Machado Noa/LightRocket via Getty Images) ·Roberto Machado Noa via Getty Images
Today’s rate cut will help Canada’s “stalled” housing sector, said Adrian Rocca, CEO of rental property developer Fitzrovia, “but I would have liked a clearer narrative that rates will keep easing.”
Signalling that cuts are going deeper would “give consumers the confidence to get back out and spend, and give businesses the confidence to get off the sidelines and into the game,” Rocca said in a statement emailed to Yahoo Finance Canada. “For developers, it would help with valuations by providing more downward pressure on the 10-year bond rates.”
Rocca said more fiscal tools specifically meant to stimulate development are also needed urgently. “Without fast, coordinated fiscal and monetary action, Canada not only faces a prolonged affordability crisis but also a deeper economic drag when real estate fails to play its historic role as a driver of growth.”
Low risk of U.S. tariffs inflaming Canadian inflation: Desjardins
Canadian and American flags fly near the Ambassador Bridge at the Canada-USA border crossing in Windsor, Ont. on Saturday, March 21, 2020. THE CANADIAN PRESS/Rob Gurdebeke ·The Canadian Press
Bank of Canada Governor Tiff Macklem said Ottawa’s move to scrap tariffs on U.S. goods not covered by the CUSMA trade agreement beginning this month was a key factor ahead today’s rate cut.
Desjardins deputy chief economist Randall Bartlett says while policymakers may have lingering concerns about “tariff passthrough into underlying inflation,” his research suggests the risks are now low.
“The federal government’s reversal on applying counter-tariffs on roughly US$44B in imports from the US was the icing on the cake,” he wrote in a report on Wednesday.
“Not only do we think this will lower the path of inflation in the next couple of years to something closer to the Bank’s de-escalation scenario, but growth is likely to ultimately converge to the level of that scenario as well,” Bartlett added.
In a note published this morning, Joseph Brusuelas, chief economist at global financial services firm RSM, writes that despite the BoC’s “lack of forward guidance,” the labour and inflation context are “creating the necessary policy space for the central bank to cut its policy rate at least one more time — and possibly more — going forward.”
In spite of a heavy focus on trade war impact for much of this year, Brusuelas notes that the effective tariff rate on Canadian exports is three per cent, which, he says, “suggests the Canadian economy has issues beyond trade tensions and next year’s free-trade deal renegotiation.”
RBC’s Claire Fan sees slowing job market, U.S. risks driving BoC cut
“Unless there is a drastic turnaround in softening employment trends and easing core inflation in September, we think the likelihood for another cut in the October meeting is high,” said RBC economist Claire Fan. REUTERS/Chris Wattie/File Photo ·Reuters / Reuters
RBC economist Claire Fan expects the Bank of Canada to lower its key interest rate again at its Oct. 29 meeting.
“Unless there is a drastic turnaround in softening employment trends and easing core inflation in September, we think the likelihood for another cut in the October meeting is high,” she said.
Early signs of improvement in trade, manufacturing and wholesale sales point to growth, suggesting another quarterly decline in GDP is unlikely.
But, export and labour market data will rank high on the list of critical indicators for BoC, she says.
“Most Canadian exports have to-date remained free from U.S. duties, but close industrial integration means that a slower U.S. economy would put non-tariffed exports at risk as well, broadening and exacerbating the challenges already faced by Canadian producers and manufacturers that could warrant additional easing from the Bank of Canada.
‘Risks have clearly swung towards more easing being delivered’: National Bank
National Bank still projects a cut in October, with cuts ending there in their current base case. (REUTERS/Chris Wattie) ·REUTERS / Reuters
Some economists have interpreted the BoC’s tone today to mean low odds for an October cut, but National Bank of Canada economists Taylor Schleich and Ethan Currie point out precedent shows otherwise.
“The only time the Bank has held, then cut, then held was the mini 2015 easing cycle when the policy rate was at or below one per cent,” they write, adding that “the BoC is trying to temper easing expectations” by removing language allowing for the need for a future reduction.
National Bank still projects a cut in October, with cuts ending there in their current base case. However, they write, “risks have clearly swung towards more easing being delivered. Finger in the air, we’d assign a 40% probability to the terminal rate settling at two per cent (or lower),” with future economic data and the federal budget all factors looking forward.
Fed poised to deliver first rate cut of 2025
The Bank of Canada is also expected to lower rates today, highlighting a broader shift among central banks toward easing monetary policy to support slowing economies.REUTERS/Jonathan Ernst/File Photo ·Reuters / Reuters
The Federal Reserve is expected to cut interest rates by a quarter percentage point this afternoon, its first move lower in 2025, as officials weigh inflation against signs of a weakening job market.
Inflation remains above the central bank’s 2% target, while the latest jobs report shows the economy added 22,000 jobs in August. The unemployment rate rose to 4.3 per cent from 4.2 per cent.
Matthew Luzzetti, chief U.S. economist for Deutsche Bank, expects three cuts in total this year, while Wilmer Stith, bond portfolio manager for Wilmington Trust, said it’s “one and wait and see.”
Wednesday morning, the Bank of Canada cut its benchmark interest rate by 25 basis points, a move economists largely expected amid signs of economic weakness.
Bank of Canada rate cut welcomed by small businesses, CFIB economist says
The Bank of Canada’s decision to cut interest rates is being welcomed by small business owners facing weak demand and a soft labour market, according to the Canadian Federation of Independent Business.
“Lower interest rates seems like the right move that could fuel stronger demand and, if coupled with more policy certainty and a better business environment overall, could pave the way for a much stronger economy going into 2026,” said chief economist and VP of research, Simon Gaudreault.
Canadian Chamber of Commerce hails ‘welcome pivot’ from BoC
One of Canada’s largest business advocacy groups says the BoC’s rate cut on Wednesday sends an encouraging signal to its members.
“The Governing Council’s callout to support economic growth is an intentional pivot, recognizing that conditions warrant more action,” Canadian Chamber of Commerce principal economist Andrew DiCapua stated in a news release.
“This is a welcome pivot that sets the stage for further action in the coming meetings.”
Rate cut seen as psychological boost for housing market, not financial game-changer
“The rate cut is more about psychology than math,” said Joel Fox, COO at Ownright, a real estate law startup.
“A quarter-point cut isn’t life-changing financially, but even a small drop can give hesitant buyers and sellers confidence that the market is stabilizing after years of uncertainty.”
Fox says he’s already seeing real estate activity pick up, but prices still remain well below 2022 highs.
As a result, there’s a gap between what buyers expect to pay and what sellers hope to get.
“This rate cut means the divide could narrow as lower borrowing costs bring more people off the sidelines that may have been waiting, but the rebound won’t be uniform across the country,” he said, referencing a cooling in condo markets.
BoC’s messaging ‘muddled’: Monex Canada research chief
Nick Rees, head of macro research at foreign exchange firm Monex Canada highlighted the “muddled” messaging in today’s announcement, with the BoC “on the one hand warning of greater downside risks to the economy, while on the other, removing language guiding toward further cuts.”
“While Governor Macklem did little to clear up this apparent inconsistency in his press conference, we suspect that further cuts are coming,” Rees said in comments sent to Yahoo Finance Canada. “Our longstanding view has been that the Canadian economy is running much cooler below the surface than headline indicators might suggest.”
Monex expects another cut in December, but Rees adds that “the BoC is much closer to the end of its easing cycle than it is to the beginning, limiting the extent to which markets can price in further easing.”
October cut likely, but what comes after is less clear: TD
The line in today’s Bank of Canada release noting that “Governing Council is proceeding carefully, with particular attention to the risks and uncertainties” is noteworthy for its cautionary tone, TD economist Andrew Hencic says in a note to clients.
“This will help rein in market pricing from becoming overly aggressive on rate cut expectations,” Hencic writes. “But, at the same time, we have long maintained this would not be a one-and-done scenario for the BoC.”
TD still expects a cut in October given the employment picture and core inflation softening, but Hencic says the future is less certain.
“Beyond that, we’ll need to assess the state of the economy and overall environment,” he writes. “The ball goes into the government’s court with their Budget on November 4th. The BoC will factor in spending and other initiatives for the decision in December.”
‘Murky outlook means more data dependance’: ATB Financial
The BoC offered little in terms of forward guidance on Wednesday, alongside its first rate cut since March.
Governor Tiff Macklem stressed that now is a particularly tough time to present a fulsome outlook.
“We are taking a shorter horizon, or being a little less forward-looking than usual,” he said on Wednesday.
ATB Financial chief economist Mark Parsons says this places greater emphasis on incoming data.
“[A] murky outlook means more data dependance,” he wrote in a report following the bank’s decision. “Expect the upcoming reports on CPI, GDP and employment before the October announcement to carry extra weight.”
“Our current call is that the Bank of Canada will cut one more time this year by 25 basis points,” Parsons added. “But we wouldn’t rule out two more cuts in the final two meetings if inflation cooperates.”
Mackenzie: Economic weakness makes October BoC cut more likely
The Bank signalled in today’s announcement that it remains concerned about the trajectory of the economy, leaving the door open to further easing before year-end, says Dustin Reid, chief strategist, fixed income at Mackenzie Investments.
Reid expects another 25 basis point cut in October, which would bring the overnight rate to 2.25 per cent — “the bottom of the BoC’s neutral range.”
“The Bank is unlikely to ‘skip’ the October meeting and wait until December, given signs of further economic degradation,” he added.
October cut may not be likely: BMO chief economist Porter
BMO chief economist Douglas Porter writes that the absence of a mention of “potential for further easing” today (language that was used in the July announcement) suggests the BoC is “not keen to provide a follow-up cut in October” — though he acknowledges the ongoing backdrop of unpredictability.
Nonetheless, Porter writes that today’s cut “better balances the risks to the economy and inflation.” BMO now expects two more cuts, currently slotting them in for December and March 2026.
Bank of Canada could return to baseline forecast in October if tariff stability holds: Macklem
Bank of Canada Governor Tiff Macklem says the central bank may be able to return to a baseline forecast in October if recent stability in U.S. tariffs continues.
“Before we got hit with tariffs, we could see lower interest rates were feeding through the economy. Growth was picking up. The unemployment rate was ticking down,” he said.
But, tariff shocks since February forced the Bank to rely on scenario planning instead of a single projection.
“If that stability remains, I expect we will be able to get back to a base-case projection in October,” he said.
Macklem: Removal of Canada counter-tariffs ’tilted the balance’ towards today’s rate cut
Bank of Canada Governor Tiff Macklem says Ottawa’s decision to remove counter-tariffs on certain U.S. goods after Sept. 1 helped pave the way for today’s rate cut by easing inflationary pressure.
“The effect of counter-tariffs is a once-off increase in the prices of those goods. That’ll show up as higher inflation, temporarily,” he told reporter Wednesday in Ottawa.
“Looking forward, that has taken off some of the upside risk to future inflation. And that was one of the thing that tilted the risks today in favour of cutting the interest rate.”
Bank of Canada to decide on October cut after weighing spillover job losses, trade costs
Bank of Canada Governor Tiff Macklem said the central bank will decide on another rate cut in October by weighing how far weakness in trade-exposed industries is spilling into the broader economy.
He noted tariffs are hurting sectors like transportation and related services, with job losses mounting beyond those areas since July. While weaker growth puts downward pressure on inflation, Macklem warned trade disruptions and supply-chain adjustments are raising business costs.
“When you talk to businesses, they’re telling us they’re facing a host of new costs related to trade disruption. They’re trying to change their supply chains or finding new suppliers. They’re trying to develop new markets. They’re trying to reroute things. That all entails cost,” he said.
“Tariffs are increasing trade friction with our biggest trading partner. That has efficiency costs. Monetary policy can’t undo that.”
“What we can do is help the economy adjust while maintaining well-controlled inflation. That’s what we’re focused on.”
Decisions will be made “one meeting at a time” based on the balance of risks, he said.
‘We’re not expecting a recession’: Macklem
Bank of Canada Governor Tiff Macklem says a recession is not part of the central bank’s current economic scenario regarding U.S. tariffs.
“If you take the current tariff scenario, which is roughly the tariff scenario we’re still in, we’re not expecting a recession,” he told reporters in Ottawa on Wednesday.
The Bank has avoided a singular outlook for the economy at recent meetings, opting instead for a range of U.S. tariff-based scenarios.
