The Bank of Canada Cuts Key Rate to 2.25%

October 29, 2025

The Bank of Canada announced this morning that it has reduced its overnight policy rate by 25 basis points to 2.25%. This decision follows shortly after a similar cut last month and signals the Bank’s cautious approach in light of ongoing trade uncertainty with the United States. The Bank also suggested the easing cycle may be over.

Although the market is not anticipating additional rate cuts this year, it’s important to put the current environment in context. We have emerged from an extended cycle of rate reductions, and today’s rates are not only historically aligned but also at levels found in a healthy economy. This renewed affordability presents a timely opportunity for borrowers to re-evaluate their mortgage options and potentially benefit from the favorable rate landscape.

With this change, both the prime rate and variable mortgage rates will decrease by 0.25% by tomorrow. You will see the prime rate at major banks lowered to 4.45%. Insured variable mortgage rates are now firmly below 4% as are many uninsured variable mortgage rates, depending on the lender. Insured variable rates as low as 3.54% will be available in some Provinces. For Canadians with variable-rate mortgages, this means a reduction in borrowing costs and delivers relief for household budgets.

Bond yields have varied throughout the year and are down by over 0.40% since the summer. However, this only has them back to where they were in the spring. Since fixed mortgage rates are tied to bond yields, and not the Bank of Canada rate, there is no relief in sight for fixed mortgage rates. 

Bank of Canada Governor, Tiff Macklem, indicated that this level of rates might be sufficient to hold inflation near their 2% target, while also supporting the economy. The Bank stated that "GDP growth is expected to be weak in the second half of the year" and they do not project a pick-up in GDP growth in 2026. They also stated "The Bank expects inflationary pressures to ease in the months ahead and CPI inflation to remain near 2% over the projection horizon."

The importance of a resolution to our ongoing trade dispute with the US couldn't be more clear. Our central bank is focused on it and it affects significant policy decisions. This is made clear when the Bank states "The Canadian economy faces a difficult transition. The structural damage caused by the trade conflict reduces the capacity of the economy and adds costs. This limits the role that monetary policy can play to boost demand while maintaining low inflation. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval."

In recent years average Canadians have thought about and discussed what the Bank of Canada is doing more than we can ever recall. Hopefully now that rates are back to historically normal and healthy levels, this focus on the Bank will diminish. If you attended a sporting event and all the talk was about the referees, then is wasn't a good event. We hope going forward that we can talk less about the referee in our market (the Bank of Canada) and more about people, products, opportunities and solutions. These are the conversations we expect in a healthy market.

You can read the Bank of Canada's full press release here - 

https://www.bankofcanada.ca/2025/10/fad-press-release-2025-10-29/

The next Bank of Canada rate announcement is scheduled for December 10.

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