Bank of Canada to Emphasize Risks Ahead of Rate Decision

Ottawa | 18-Oct-2025, 10:00 EST — Bank of Canada Governor Tiff Macklem made it clear on Thursday that the central bank will give “greater weight to risks” in its upcoming policy deliberations. The comments, delivered less than two weeks before the next rate decision on October 29, highlight a subtle but important shift in tone from the central bank.

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Governor’s Message

In his remarks, Macklem underlined that policymakers are carefully watching not just inflation and growth, but also the broader economic risks that could destabilize financial conditions. These risks include slower global demand, ongoing trade uncertainties, higher household debt levels, and vulnerabilities in the housing market.

For most of the year, the Bank’s communication has been dominated by the path of inflation—how quickly it is cooling from its pandemic-era peaks and whether it is returning to the 2% target. By putting risks at the center of its October 29 discussions, the Bank is signaling it does not want to over-commit to aggressive rate moves that could backfire if conditions change suddenly.

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Implications for Borrowers and Lenders

For Canadian homeowners with mortgages, Macklem’s caution suggests the pace of interest-rate cuts may be slower than many had anticipated. While markets still broadly expect a 25-basis point cut later this month, the central bank may adopt a more incremental approach in subsequent months.

• Renewals: Roughly 60% of Canadian mortgages are up for renewal in 2025–26. A risk-sensitive stance increases uncertainty around what rate borrowers will face at reset. If the Bank slows its easing, some households may see less relief on monthly payments than hoped.
• New borrowers: For those entering the housing market, expectations of falling rates may have fueled optimism. Macklem’s comments temper those expectations, signaling that affordability challenges could persist.
• Lenders: Banks and non-bank lenders will have to manage spreads carefully. With the Bank of Canada emphasizing uncertainty, wholesale funding markets may remain cautious, influencing the cost of capital for mortgage originators.

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Market Reaction

Financial markets reacted modestly to the Governor’s remarks. The Canadian dollar edged higher, reflecting a view that aggressive rate cuts are less likely. Bond yields, which influence fixed mortgage rates, held steady but traders noted a recalibration in expectations for early 2026.

Equity markets were largely unchanged, though financial sector analysts flagged the remarks as important for mortgage lenders and insurers, who rely heavily on predictability in interest-rate settings.

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Economic Backdrop

Macklem’s comments come at a time of mixed economic data. Inflation has eased but remains slightly above target. Consumer spending is cooling, particularly in durable goods, while the labour market shows signs of softening. Exports have been hampered by slower U.S. demand.

At the same time, housing affordability remains a pressing concern. Despite a strong pace of new housing starts, many buyers remain sidelined by high borrowing costs. This makes the Bank’s policy balancing act even more delicate.

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Expert Views

Economists are divided on what the shift means. RBC continues to forecast a 25-basis point cut in October, noting that inflation is cooling sufficiently to allow modest easing. However, some analysts at TD Securities argue the Bank could pause after October if risks materialize, leaving mortgage rates higher than expected into early 2026.

Others warn that emphasizing risks could confuse households who are already struggling with uncertainty. “For Canadians renewing mortgages, clarity is critical,” one economist noted. “The more the Bank signals hesitation, the harder it is for families to plan.”

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Why It Matters

For the mortgage market, the Bank of Canada’s emphasis on risks is a reminder that the policy path is not one-directional. Homeowners who have been expecting a steady decline in borrowing costs may need to prepare for a more uneven journey.

• If risks tilt toward weaker growth, the Bank could ease more aggressively.
• If risks tilt toward sticky inflation, the Bank may pause or even reverse cuts.

Either way, the takeaway for households is caution. Renewals in late 2025 and early 2026 will come with higher-than-historical rates, and planning buffers for debt service will be crucial.