Bank of Canada lowers key interest rate to 2.5%
The Bank of Canada (BoC) has cut its key interest rate for the third time this year.
Canada’s central bank announced on Wednesday that it’s lowering its lending rate by 0.25 points from 2.75 to 2.5 per cent. This comes after three interest rate holds that began in April.
The Governing Council attributed the BoC’s rate cut to three developments since its July decision. The first is the country’s softening labour market, and the second is diminished upward pressures on underlying inflation.
Lastly, Prime Minister Mark Carney’s removal of most retaliatory tariffs against the United States lessens the risk of future inflation.
“Considerable uncertainty remains. But with a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks going forward,” reads the announcement.
Bank of Canada lowers policy rate to 2½%https://t.co/tVEfz7D8Sf#economy #cdnecon
— Bank of Canada (@bankofcanada) September 17, 2025
Ratehub.ca mortgage expert Penelope Graham forecasted last week that weaker job data in Canada and the U.S. would give the Bank a compelling reason to deliver a 0.25 percentage point rate cut.
“Evidence is mounting that tariffs are whittling economic strength, and that some stimulus will be needed in the short term,” she explained. “The growing likelihood of a similar cut from the U.S. Federal Reserve also provides the BoC breathing room to lower rates without pressuring the loonie.”
Graham added that the BoC is also considering a new set of inflation data. Statistics Canada reported on Tuesday that the country’s annual inflation rate rose to 1.9 per cent.
“The federal government’s recent decision to remove most retaliatory tariffs on imported goods from the United States will mean less upward pressure on the prices of these goods going forward,” stated the Governing Council.
What the Bank of Canada interest rate cut means for homeowners and buyers
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For every 25-basis-point drop, adjustable variable rate mortgage holders can expect to pay approximately $15 less per $100,000 of mortgage in monthly payments, according to Victor Tran, Rates.ca mortgage and real estate expert.
However, he added that the Bank of Canada interest rate cut doesn’t necessarily help those with fixed-rate mortgages.
“While a 25-basis-point cut will lead to lower variable rates, fixed rates have remained sticky, despite recent dips in bond yields,” explained Tran.
If you’re a prospective homebuyer, the real estate expert doesn’t expect the lower rate to have a significant impact on the housing market.
“This overnight rate cut is unlikely to lead to substantial activity in the housing market, and the down market is likely to continue for the foreseeable future,” he said. “Given the broader economic uncertainty, it’s not surprising that many would-be homeowners are putting purchase plans on hold.”
Tran cited affordability as a persisting issue, especially in expensive markets like Toronto and Vancouver.
“However, increased inventory and softening prices may make purchasing now an attractive option for some buyers,” he added.
For homebuyers hoping to purchase soon, Tran advised closing in November, after the next Bank of Canada interest rate announcement on Oct. 29.
He said that while lower rates aren’t guaranteed, they aren’t out of the question either.
“It’s possible we may see more overnight rate cuts before the end of the year, and closing later in the year will allow a homeowner to take advantage of any downward movement in rates in the coming months,” explained Tran.
Meanwhile, Canadians with mortgages should lock in a rate approval, keep an eye on mortgage rate news, and adjust if rates go down, the expert suggested.
“Don’t rely on the lender to adjust rates for you,” he said. “Being proactive can save you money. Most lenders will allow ‘float downs’ — revising rate holds to a lower rate when available. If the lender does not allow float downs, simply cancel the rate hold contract and place a rate hold with another lender that is offering the better rate.”
Canada’s next interest rate announcement will be on Wednesday, Oct. 29. The central bank said it will continue to assess the impacts of tariffs, economic uncertainty and inflation. It pledged to ensure that Canadians continue to have confidence in price stability through “this period of global upheaval.”