The Bank of Canada reduced its key interest rate by 25 basis points on October 29, 2025, lowering the overnight rate to 2.25%. This marks the second consecutive cut after September’s first reduction, as the central bank responds to ongoing economic challenges, including global trade tensions and subdued growth outlooks. The rate cut aims to support Canadian businesses and consumers facing pressure from slower economic momentum and trade uncertainty. Although inflation remains close to target, the Bank signaled that it may pause further cuts if inflation and growth stabilize, making this move a cautious but significant step to encourage economic resilience.
On October 29, 2025, the Bank of Canada announced it has lowered its benchmark interest rate to 2.25%, reducing borrowing costs for Canadians amid a fragile economic environment. This decision follows a similar cut in September, indicating ongoing concerns about trade uncertainties and weaker economic growth impacting the country.
The move aims to stimulate investment and spending by making borrowing cheaper for consumers and businesses, although it reflects caution due to inflation still running near the 2% target. The Bank’s message is clear: while the economy faces headwinds like tariffs and slower GDP growth, inflation pressures are expected to ease, balancing the need to support growth without overheating the economy.
Why the Rate Cut Matters to You
This reduction affects mortgage rates, personal loans, and other forms of credit tied to the Bank of Canada’s overnight rate, typically lowering monthly payments and freeing up cash flow. For homeowners with variable rates, this can mean immediate savings, while prospective borrowers may find more attractive financing conditions.
Businesses, especially small- and medium-sized enterprises (SMEs), benefit through reduced borrowing costs that can support expansions, equipment purchases, or hiring plans. However, lower interest rates also mean reduced returns on savings, encouraging investment and spending rather than holding cash.
The Economic Context Behind the Cut
Canada’s economy is adjusting to numerous challenges, notably escalating U.S. trade tariffs weighing on exports and slowing overall economic activity. The Bank of Canada projects weaker GDP growth and acknowledges persistent external risks. Unemployment remains elevated, and consumer demand is cautious, reinforcing the need for accommodative monetary policy at this juncture.
Despite inflation hovering near target, core inflation measures indicate stickier price pressures in some sectors. The Bank’s strategic approach is to maintain rates in a range that supports growth without adding undue inflation risk.
What Canadians Should Watch Next
The Bank of Canada has indicated this 25 basis point cut may be its last for the near term, with future actions depending on how inflation and economic conditions evolve. The next rate announcement is scheduled for December 10, 2025, when economic forecasts will be updated.
For Canadians, this means keeping an eye on borrowing costs, inflation trends, and how the economy responds to global trade developments. Smart financial planning during this period can help maximize the benefits of lower rates and protect against inflation impacts.
This rate cut underscores the Bank of Canada’s balancing act: supporting a sluggish economy while striving to keep inflation stable for Canadian families and businesses navigating uncertain times.