October 29, 2025 – The Bank of Canada announced another reduction to its key interest rate, bringing the overnight lending rate down to 2.25%. This marks the second consecutive rate cut as the Bank responds to signs of economic weakness across the country.
Slowing Economic Growth
Canada’s economy contracted by 1.6% in the second quarter of 2025, largely due to falling exports and reduced business investment. The Bank expects growth to remain modest — under 1% — through the remainder of the year, citing ongoing trade tensions and uncertainty linked to U.S. tariffs. Still, officials emphasized that the steep export decline seen earlier this year is unlikely to repeat.
Housing Market and Labor Trends
In its October Monetary Policy Report, the Bank noted a rebound in residential investment, with housing starts and resales improving since the spring. However, affordability concerns, limited land availability, and labor shortages continue to restrict broader growth.
Meanwhile, Canada’s job market remains under pressure. Employment in trade-sensitive sectors has weakened, wage growth has slowed, and the unemployment rate is now at its highest level in more than four years — the worst since 2016 outside of the pandemic period.
Inflation Outlook
Inflation remains stable within the Bank’s 1–3% target range, and officials expect it to hover near 2% through 2027. Elevated housing costs continue to drive prices upward, while broader economic slack and the federal rollback of the carbon tax for consumers are helping keep inflation in check.
Looking Ahead
The Bank signaled that interest rates will likely stay at their current level for now, provided inflation and economic activity evolve as expected. This suggests that policymakers are entering a holding pattern — ready to act only if conditions significantly worsen.
The next interest rate announcement is scheduled for December 10, 2025, followed by the Bank’s next Monetary Policy Report on January 28, 2026.