The Bank of Canada Cuts Rate by 0.25%

September 17, 2025

The Bank of Canada announced this morning that it has reduced its overnight policy rate by 25 basis points to 2.50%. This is the first rate cut by the Bank since March of this year. The Bank noted slowing global growth, weakness in the Canadian economy and less upside risk to inflation as key factors in its decision. This rate cut was largely expected by the market and places the policy rate below the midpoint of the Bank's 2.25% to 3.25% neutral range estimate.

With this change, both the prime rate and variable mortgage rates will decrease by 0.25%. Major banks’ prime rates will now be lowered to 4.70%. Some variable mortgage rates will drop below 4%. For Canadians with variable-rate mortgages, this marks a timely reduction in borrowing costs and delivers meaningful relief for household budgets.

Bond yields rose over the summer but have declined in September. They are back to where they were in the spring. They have not moved today in response to this rate cut decision since this decision was already 'priced in'. This means that fixed mortgage rates will remain unchanged after this Bank of Canada cut. The bond market is keenly attuned to economic news and any further declines in bond yields would be a signal of further economic weakness in Canada.

Bank of Canada Governor, Tiff Macklem, said there was a clear consensus for a cut today, considering the weak economic outlook and moderate inflation numbers. However, he gave no indication of the potential for future rate cuts. Looking forward, the Bank of Canada stated "The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled." 

The impact of ongoing trade discussions is now being felt. The Canadian economy contracted by 1.6% in the second quarter and the labour market lost 66,000 jobs last month, moving the unemployment rate above 7%, the highest it has been in a decade. Uncertainty does not fuel growth. While inflation is moderate, helped by Canada removing retaliatory tariffs on the US, the impact of tariffs, job losses and unclear guidance from the top continue to weigh on the Canadian economy. Absent future bad news on the inflation front, expectations are for one more rate cut before the end of the year.

Over the past year, we have seen both mortgage rates and home values trend downward. Affordability has improved. Interest rates are low by historical standards and we are in a relatively normal and healthy rate environment. Sidelined homebuyers should revisit the numbers and check on whether they can afford to enter the market today. Current mortgage holders should also run the numbers to see if there is a way to optimize their current financing at lower rates and/or a lower monthly payment. Whatever your situation, talk to us at Frank Mortgage. We can run the numbers for you and help you discover your best options.

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

https://www.bankofcanada.ca/2025/09/fad-press-release-2025-09-17/

The next Bank of Canada rate announcement is scheduled for October 29.

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