The Bank of Canada’s governing council was united last month on the need to reduce its benchmark interest rate — but not on when the cut should take effect. A newly released summary of deliberations from the October decision shows policymakers wrestled over the timing of the move before ultimately lowering the policy rate by a quarter percentage point to 2.25 per cent, marking the second consecutive cut.
Council members agreed the economy was too weak to sustain higher rates, with U.S. tariffs weighing heavily on growth and inflation projected to hover near the bank’s two per cent target. But some argued it would be wiser to wait until later in the fall to get a clearer picture of how the economy was digesting trade disruptions — and to assess the federal budget unveiled just last week.
Others pushed for a more immediate reduction, pointing to a soft labour market, sluggish activity, and weak growth projections for the remainder of the year. That argument prevailed.
With the October cut, the bank signalled it believes interest rates have now done most of the heavy lifting required to smooth Canada’s transition through tariff-driven turbulence. Unless the outlook sharply deteriorates, decision-makers indicated further cuts are unlikely.
The October decision also marked a return to formal central forecasts for growth and inflation. Since January, the bank had been issuing “illustrative scenarios” instead of full projections due to widespread uncertainty around U.S. trade actions. Officials now say that uncertainty has eased enough to confidently publish updated forecasts.
The Bank’s new projections foresee real GDP growing at an average of 0.75 per cent in the second half of 2025 — a rebound from the 1.6 per cent annualized contraction in the second quarter. Consumption and housing activity are expected to drive that recovery, while government spending is forecast to provide support even though council members had not yet seen the federal budget during their October discussions.
Governor Tiff Macklem, speaking to MPs last week, declined to comment directly on the budget’s measures but endorsed its broad diagnosis of Canada’s economic challenges, including weak productivity and low investment. He also stressed that while deficits can fuel inflation in a hot economy, Canada is currently operating well below its capacity.
The Bank of Canada will deliver its next interest rate decision on December 10.