The cut: a quarter point to 2.5%
On September 17, 2025, the Bank of Canada lowered its policy rate by a quarter of a percent to 2.5%. The Bank Rate now sits at 2.75%, and the deposit rate at 2.45%.
The move reflects a weaker economy and less upward pressure on inflation. The Bank is trying to balance growth against the ongoing mess of tariffs and trade shifts.
What's happening globally
After holding up under higher US tariffs and uncertainty, global growth is slowing. In the United States, businesses are investing but consumers are cautious and job growth has cooled. US inflation ticked up as some tariff costs get passed along to shoppers.
Europe's growth has eased as tariffs bite into trade. China's economy looked solid early in the year but investment is weakening. Oil prices are roughly where the Bank expected them in July. Global financial conditions have loosened — equity markets up, bond yields down. The Canadian dollar has been steady against the US dollar.
Canada's economy took a hit in Q2
Canada's GDP shrank about 1.5% in the second quarter of 2025, right in line with what the Bank expected. Tariffs and trade uncertainty weighed hard on activity.
Exports plunged 27% in the quarter — a sharp reversal after companies rushed orders ahead of tariffs in Q1. Business investment also fell. Consumer spending and housing activity both grew at a healthy clip, but slow population growth and a softer job market will likely drag on household spending in the months ahead.
Jobs are slipping, especially in trade-hit sectors
Employment has declined in the two months since the Bank's July report. Job losses have been concentrated in sectors sensitive to trade, while hiring in the rest of the economy has slowed as businesses pull back on new positions.
The unemployment rate climbed to 7.1% in August, up from 6.9% in March. Wage growth continues to ease.
Inflation near 2%, but underlying pressures around 2.5%
Consumer price inflation was 1.9% in August — the same as in July. Excluding taxes, it was 2.4%. The Bank's preferred core measures have been around 3% lately, but the monthly momentum seen earlier in 2025 has faded.
A wider set of indicators suggests underlying inflation is running around 2.5%. The federal government's recent decision to drop most retaliatory tariffs on US imports will mean less upward pressure on those prices going forward.
What the Bank is watching now
With a weaker economy and less risk of inflation running hot, the Bank judged a rate cut was the right move to balance the risks. But trade disruptions keep adding costs even as they slow growth, so the Bank is proceeding carefully.
The focus is on how exports evolve under US tariffs and shifting trade relationships; how much that spills into business investment, employment, and household spending; how trade costs and reconfigured supply chains get passed to consumers; and how inflation expectations hold up.
The Bank's job is to make sure Canadians keep confidence in stable prices through this global upheaval — supporting growth while keeping inflation well controlled.
What this means for your mortgage
Fixed rates tend to follow bond yields, which have dropped as markets absorb slower growth and looser policy. Variable rates will ease slightly as this cut flows through. If you're renewing or looking to lock in, now's a good time to map out what makes sense for your timeline and risk tolerance.
Trade uncertainty isn't going away overnight, and the Bank is watching how it all shakes out. Work with a broker who can walk you through the options and build a strategy that fits your situation — not just the headline rate.
