Bank of Canada Lowers Key Rate Again — Are More Cuts Coming in 2026?
As expected, the Bank of Canada (BoC) announced another 25-basis-point rate cut this morning, bringing its key policy rate down to 2.25% (with the bank deposit rate now at 2.20%).
This latest move reflects the Bank’s ongoing concern about sluggish economic growth and the ripple effects of global trade tensions—particularly U.S. tariffs on autos, steel, aluminum, and lumber. But the real headline is what the Bank said next: it now believes the policy rate is “at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.”
In other words, the BoC is likely done cutting—for now.
Why the Bank Cut Rates
Several factors pushed the Bank toward this decision:
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Weak Economic Growth: Canada’s economy contracted by 1.6% in Q2, as exports and business investment both declined sharply.
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Trade War Fallout: U.S. trade actions are having a “severe effect” on Canada’s key industrial sectors, eroding demand and employment.
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Soft Labour Market: Job losses over the summer have left the unemployment rate stuck at 7.1%, a clear sign of weakness.
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Inflation Under Control: With inflation hovering near 2%, the Bank has some breathing room to support the economy through rate relief.
The Bigger Picture: A Structural Transition
Governor Tiff Macklem underscored that this slowdown isn’t just part of a normal business cycle. He described it as a “structural transition”—a period where Canada’s productive capacity is shrinking due to global realignments and cost pressures.
That limits how much monetary policy can do. Macklem cautioned that the Bank can’t simply cut rates endlessly to boost growth without risking inflation later. Still, his comments suggest a bias toward further cuts in 2026 if demand continues to weaken.
Economic Outlook: Slow Recovery Ahead
The Bank expects growth to remain weak through the rest of 2025, before gradually recovering as consumer and government spending pick up in 2026 and 2027.
| Projection | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP Growth | 1.2% | 1.1% | 1.6% |
Economists expect inflation to ease back toward 2%, giving the Bank some flexibility if conditions deteriorate further. Still, the BoC will be watching key data closely—especially employment, consumption, and core inflation—before taking any additional action.
What This Means for Borrowers and Homeowners
For Canadians, today’s cut means a bit more breathing room:
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Variable-rate mortgage holders will likely see small payment reductions within the next billing cycle.
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Fixed-rate borrowers may benefit from slightly lower bond yields, though these effects are already priced into many lender offerings.
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Renewals and new buyers could see improved affordability heading into 2026—especially if inflation continues to cool.
That said, the Bank’s message is clear: the economy remains fragile, and rate changes will be data-dependent moving forward.
Looking Ahead
The next Bank of Canada rate announcement is scheduled for December 10, 2025.
For now, policymakers believe rates are in the “right range,” but most analysts—including us—expect at least one or two more quarter-point cuts in 2026 if growth and inflation remain subdued.
Bottom Line
The BoC is signalling a pause, not an end. Rates are now low enough to support the economy—but if the slowdown deepens, the Bank may still have to act again next year.
If you’re currently in a variable or adjustable term, now is not the time to consider locking in. Fixed rates are still above most variable and adjustable terms and without a clear timeline for any increases to Prime Rate on the horizon, keeping your rate lower for longer makes the most sense.
If your mortgage is coming up for renewal or you’re considering a purchase in 2026, now’s a good time to review your strategy and lock in flexibility.
