In this blog:
What Does the Bank of Canada do?
Eight times a year, the Bank of Canada (BOC) announces its benchmark lending rate based on an assessment of the Canadian economy. This rate directly impacts variable interest rate products, such as mortgages, loans, and lines of credit, as banks and lenders adjust their prime rates accordingly. Understanding these changes can help you make informed financial decisions. For more information, take a look at our blog post summarizing four of the most frequently asked questions regarding the BOC.
Below, we break down the latest announcement and what it means for you.
Were there any Changes to the Interest Rate?
The Bank of Canada has dropped its key interest rate down from 2.75 percent to 2.50 percent today, citing a softer economy and less risk to upward inflation moving forward.
What Information did the Bank Share about the Economy?
Canadian Economy
- Canada’s GDP contracted by roughly 1.5 percent in quarter two of 2025, aligning with projections in July’s Monetary Policy Report (MPR).
- Global trade uncertainty and ongoing tariff pressures are expected to remain a significant constraints on Canada’s economic outlook in the coming months.
- While consumption and housing activity posted gains, both business investment and exports declined in the second quarter.
- Slowing population growth and a cooling labour market are likely to weigh on household spending heading into the fall.
- Trade-sensitive industries faced the steepest job losses, contributing to the 7.1% unemployment rate recorded in August 2025.
- Despite these challenges, the Canadian dollar has remained relatively stable against the US dollar.
Global Economy
- Global growth is beginning to lose momentum, following a period of resilience in the face of US tariffs.
- Inflationary pressures are rising in the United States as businesses pass along higher tariff-related costs to consumers.
- Global oil prices remain broadly in line with the projections set out in July’s MPR.
How does this Impact Me?
- Borrowing costs for mortgages, lines of credit, and other loans tied to the prime rate will decline immediately following today’s announcement.
- The lifting of retaliatory tariffs on US goods is expected to ease price pressures, helping to make certain everyday products more affordable for Canadian consumers.
Will there be any Interest Rate Changes in the Near Future?
The next Bank of Canada announcement will take place on October 29, 2025. Governing Council is paying particular attention to the continued risks and uncertainties around the ongoing trade conflict with the US.
Some experts are projecting one additional rate cut in 2025, which will take place on either October 29 or December 10, 2025.
