Bank of Canada Poised for Another Rate Cut as Economy Slows

Ottawa | 29-Oct-2025 — The Bank of Canada (BoC) is widely expected to trim its policy interest rate once again this week, reducing the benchmark from 2.50% to about 2.25% on October 29. It would mark the second consecutive rate cut in 2025, as policymakers grapple with slowing growth, tariff headwinds, and sticky housing costs.

Why Another Cut?

Economists point to several factors behind the central bank’s dovish tilt:

• Economic contraction: Canada’s GDP shrank by about 1.6% in Q2 2025, raising fears that growth momentum is fading.
• Retail weakness: Consumer spending remains subdued as households balance higher debt servicing with day-to-day costs.
• External pressure: The latest round of U.S. tariff escalations has added fresh uncertainty for Canadian exporters and supply chains.
• Inflation trends: While inflation has cooled from peaks above 6% in 2023, it remains just above the BoC’s 2% target, mostly due to shelter and mortgage interest costs.

By lowering the overnight rate, the BoC hopes to stimulate demand, ease borrowing conditions, and soften the economic landing.

What This Means for Mortgages

A BoC rate cut flows directly into bank prime rates, which in turn affect:

• Variable-rate mortgages (VRMs): Homeowners on floating products could see monthly payments decline slightly, depending on their contract terms.
• Home equity lines of credit (HELOCs): These credit lines, also tied to prime, should also see a modest relief in interest charges.
• New borrowers: Anyone taking out a fresh variable-rate mortgage may now qualify at slightly lower costs, though stress test rules continue to apply.

However, fixed-rate mortgages tell a different story. Unlike variable products, they are tied more closely to bond yields, which reflect global investor sentiment and inflation expectations. With bond markets still volatile, fixed rates may not fall in tandem with the BoC’s policy move.

Market Outlook

Some mortgage brokers anticipate that by year-end 2025:

• 5-year fixed mortgage rates could slip toward ~4.2% (from ~4.7–4.9% today).
• Variable mortgage rates could hover closer to ~4.0%, assuming two BoC cuts materialize.

But caution remains. If inflation flares up again, or if global bond yields rise, the downward trend may stall.

Borrower Impact

For Canadian households, the implications vary:

• Renewing borrowers: Those coming up for renewal may benefit slightly if rates ease further, but they are still facing significantly higher costs compared with the ultra-low rates of 2020–2021.
• First-time buyers: Lower borrowing rates could improve affordability marginally, but high home prices and stricter stress tests remain major barriers.
• Investors and landlords: Lower financing costs could make refinancing more attractive, but rental yields remain under pressure in some urban centres.

Risks Ahead

While a rate cut is designed to provide relief, it is not without risks.

• Debt growth: Cheaper borrowing could reignite household debt expansion at a time when leverage is already elevated.
• Housing imbalance: If buyers perceive lower rates as a green light, housing markets could see renewed upward price pressure, especially in tight supply regions.
• Policy limits: With the policy rate edging closer to its effective lower bound, the BoC has less room to maneuver if conditions worsen.

Expert Commentary

Economists remain divided. Some argue that the central bank is acting prudently to prevent a deeper recession. Others worry that moving too fast could undermine progress on inflation, particularly in housing costs, which remain persistently high.

For mortgage professionals, the consensus is clear: communication with clients is critical. Advising on the nuances of fixed vs variable, renewal strategies, and cash flow management has never been more important.

Bottom Line

The BoC’s expected cut to 2.25% reflects an effort to balance growth concerns with inflation control. For borrowers, the move could mean relief on variable mortgages and HELOCs, though fixed-rate dynamics remain more complicated.

Whether this easing cycle ultimately supports affordability — or risks fueling another round of debt-driven growth — will be closely watched in the months ahead.