On September 17, 2025, the Bank of Canada lowered its policy (overnight) rate by 25 basis points to 2.50%, marking the first rate cut in six months. The Bank Rate sits at 2.75%, deposit rate at 2.45%.
Why the Cut Happened
The BoC didn’t make this decision lightly. Several red flags pushed them:
Weakened labour market
The economy has shed over 100,000 jobs in recent months. Unemployment has hit its highest in nearly nine years (excluding the pandemic period). Job vacancies and hiring have also cooled substantially.
Economic contraction & weak near-term outlook
Q2 saw a contraction of about 1.6% annualized. Exports are down. Business investment is sluggish. Household spending is expected to be constrained by weak labour conditions.
Easing inflation risks
Inflation has been coming down; core inflation measures (“trim,” “median” etc.) remain elevated (around 3%), but there are signs pressure is easing. The Bank noted that removal of retaliatory tariffs (on U.S. imports) will help relieve inflation pressure.
Trade/Tariff disruption & external risks
U.S. (and by extension global) trade‐policy uncertainty, tariffs, and their downstream effects on business investment and export demand are hurting Canada’s trade industries. These risks compound internal weakness and make the BoC more cautious.
What This Means for Mortgage Holders: Fixed vs Variable
For anyone in real estate, or advising borrowers, this is how the cut plays out:
Variable-rate borrowers
Good news: variable rates tend to move more directly with the policy rate. So borrowings tied to variable rate products (lines of credit, variable mortgages) should see immediate relief. Lower payments come sooner. If the descriptor says “overnight rate + x,” that “overnight rate” is now lower by 25 bps.
Fixed-rate borrowers
Less immediate benefit. Fixed mortgage rates are set based largely on longer bond yields (5-year, etc.) and expectations about future inflation + central bank policy. Those longer yields have already priced in some expectation of rate cuts, but fixed rates won’t drop as simply or quickly as variable. New fixed-rate deals may become a bit cheaper, but existing fixed-rate mortgage holders are locked in until renewal.
Renewals/upcoming fixed-rate mortgages
If you’re renewing soon, or locking in, this cut gives some negotiating room. Lenders will respond (perhaps slowly), so shop and lock when you're comfortable. But don’t expect huge leaps immediately: credit spreads, lender risk assessments, and bond markets will moderate how fast fixed rates fall.
Can We Expect More Cuts?
Yes — but only conditionally. The BoC is clearly back in easing mode but moving cautiously. Markets see about 50-50 odds of another 25 bps cut in October.
Many economists think that by the end of 2025, the policy rate could fall to 2.25% if economic deterioration continues, and inflation stays under control.
However: the BoC is watching inflation risk, trade disruptions, how wage pressures evolve, and whether employment keeps deteriorating. If inflation picks up, or if external shocks (tariffs, supply shocks) worsens cost pressures, the BoC may pause or reverse course.
So more cuts are probable, but not guaranteed. Expect the BoC to take “one meeting at a time.”
Bottom-Line (from a Realtor’s Lens)
Owners with variable-rate mortgages will get relief fastest; fixed-rate owners should expect modest benefits but not dramatic shifts overnight.
For homebuyers or clients considering locking in: if you believe rates will drift lower, there may be value in waiting — but risk of inflation or external shocks might push fixed rates back up.
The cut improves affordability slightly, but not enough to counter all headwinds (jobs, growth, cost of living).
Policy risk remains: if inflation reaccelerates, or trade disruptions worsen, BoC might halt cuts or even raise
