The Bank of Canada lowered its key interest rate by a quarter of a percentage point on Wednesday, bringing the overnight lending rate to 2.25 per cent — a move that could provide some short-term relief for borrowers but signals growing concern about Canada’s economic slowdown.
Governor Tiff Macklem said the decision marks the bank’s second consecutive rate cut, reflecting “ongoing weakness in the economy and contained inflationary pressures.” The lower rate, used by lenders to set mortgage and loan repayment fees, suggests policymakers are trying to give households and businesses a break as economic headwinds mount.
Premier Doug Ford welcomed the move, posting “Great news! Let’s keep going!” on X, noting that lower borrowing costs help Ontarians “keep more money in their pockets.”
Why the Cut Matters
Macklem said U.S. tariffs and trade uncertainty have begun to drag on Canada’s economy, reducing growth and weakening exports. “We expect very modest growth through the rest of the year, with some pickup in 2026,” he said. “The structural damage caused by tariffs is reducing our productive capacity and adding costs.”
The cut follows months of sluggish GDP growth, job losses earlier this year, and inflation that remained slightly above expectations at 2.4 per cent in September. Despite inflation still hovering above target, Macklem said the broader picture points to a fragile economy in transition.
What It Means for Mortgages
For homeowners, the cut offers some breathing room — especially those with variable-rate mortgages, who will soon see slightly lower monthly payments.
“If you have an existing variable-rate personal loan, your rate will adjust automatically,” explained Natasha Macmillan, senior business director at Ratehub.ca. “The savings may not be dramatic month-to-month, but they add up over time.”
Current offerings include five-year fixed rates at around 3.79 per cent and variable rates near 3.45 per cent, making this fall’s housing market potentially more attractive for buyers. “Today’s affordability conditions are the best buyers have seen in some time,” said Ratehub.ca mortgage expert Penelope Graham.
However, Mackenzie Investments’ chief strategist Dustin Reid cautioned that the rate cut may not signal confidence in the economy. “The bank is worried the economy isn’t performing as well as expected,” Reid said. “We may be on the cusp of a technical recession.”
Impact on Investments and Savings
Lower rates are a mixed blessing for investors. While cheaper borrowing can stimulate spending, those holding GICs and other fixed-income products will see smaller returns. “Savers and passive investors will see their rate of return dip,” Graham noted. Reid advised Canadians to maintain balanced portfolios with a mix of stocks, bonds, and cash, adding, “Don’t take unnecessary risk in a volatile market.”
The central bank’s next interest rate decision is scheduled for December 10, and while Macklem hinted that further cuts may not come soon, some analysts believe there could still be one or two more reductions in early 2026.
Reid predicts the rate could fall to 1.75 per cent by mid-2026, a level last seen before the post-pandemic tightening cycle began. However, he warned that factors such as rising unemployment, shifting immigration trends, and uncertain trade negotiations could dictate the pace of future cuts.
For now, Canadians can expect a modest dip in borrowing costs — but experts caution that the Bank of Canada’s decision reflects deeper worries about the country’s economic resilience in the face of global trade turbulence and domestic structural challenges.