Bank of Canada lowers key interest rate to 2.25%
The Bank of Canada (BoC) has cut its key interest rate for the fourth time this year.
BoC announced on Wednesday, Oct. 29, that it’s lowering its lending rate by 0.25 points from 2.5 to 2.25 per cent. It also announced a bank rate of 2.5 per cent and a deposit rate of 2.20 per cent. The interest rate drop comes after another drop in September when the central bank lowered the lending rate by 0.25 points from 2.75 to 2.5 per cent.
The BoC attributed the rate cut to trade uncertainty.
“Trade relationships are being reconfigured, and ongoing trade tensions are dampening investment in many countries,” reads the announcement.
In addition, wage growth has slowed, and unemployment in Canada remained high at 7.1 per cent in September. That same month, inflation was at 2.4 per cent, slightly higher than what the BoC had expected. However, inflation is expected to ease in the coming months to near two per cent.
Bank of Canada lowers policy rate to 2¼%https://t.co/C7my5oFsAN#economy #cdnecon
— Bank of Canada (@bankofcanada) October 29, 2025
The BoC’s latest Monetary Policy Report (MPR) also predicts that the global economy will slow from about 3.25 per cent in 2025 to about three per cent in 2026 and 2027.
However, it warns that monetary policies are not enough.
“Monetary policy cannot offset the long-term implications of US tariffs or other sources of structural change,” reads the report. “The primary focus of monetary policy is to maintain low and stable inflation.”
Penelope Graham, mortgage expert at Ratehub.ca, had predicted that the Bank of Canada would cut its benchmark rate by another 0.25 per cent due to Canada’s “sputtering economy.”
Graham stated, “Business sentiment continues to be low, with the BoC’s latest survey indicating that firms don’t expect to hire next year, and that exports will continue to be squeezed by ongoing trade uncertainty.”
She added that the interest rate cut was likely since mortgage interest rates are still falling.
What the Bank of Canada interest rate cut means for homeowners and buyers
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Now seems like the ideal time for Canadians considering a fixed mortgage rate, as lenders are currently offering the lowest five-year fixed insured mortgage rate at 3.79 per cent — a rate that is just nine points higher than the lowest variable-rate option.
With buyer confidence returning as people wait for homes to become more affordable, the new rate cut could provide a boost to the housing market.
“Lower mortgage rates will incentivize pent-up demand to return to the market, should borrowers’ costs better align with budgets,” stated Graham.
As for Canadians with variable rates, according to Ratehub.ca’s mortgage payment calculator, a homeowner who put a 10 per cent down payment on a $676,154 home with a five-year variable rate of 3.79 per cent amortized over 25 years (total mortgage amount of $627,404) has a monthly mortgage payment of $3,229.
A 0.25 drop means that homeowners will see their variable mortgage rate drop to 3.54 per cent, and their monthly payment will decrease to $3,146. This means that the homeowner will pay $83 less per month or $996 less per year on their mortgage payments.
However, Robert Saunders, CEO of Ownright, a digital real estate law platform, pointed out that Canadians are facing a weak job market and that the majority of new construction is due to demand for rentals rather than homeownership as developers and households wait for more stability.
He added that while lower borrowing costs may be enough to create favourable conditions in some markets, it’s not enough to impact
“A further rate cut could help sustain momentum in markets like Montreal and Ottawa, where activity is already recovering, but in larger centres like Toronto and Vancouver, it’s unlikely to move the needle until confidence in employment and financing returns,” said Saunders.
The next scheduled rate update is on Dec. 10. You can follow BoC’s X account or subscribe to email alerts for the latest updates.
With files from Isabelle Docto