Overview of the Rate Decision
When interest rates move, the effects ripple across the entire economy, from financial markets to household budgets. On October 29, 2025, the Bank of Canada made its latest interest rate announcement, reducing the policy rate by 25 basis points to 2.25%. The Bank Rate now stands at 2.5%, and the deposit rate at 2.20%.
This latest interest rate cut is a response to ongoing economic uncertainty, weak exports, and soft labor market conditions. The goal is to support household spending, keep inflation near 2%, and help the economy adjust amid global trade challenges.
Why the Bank Made This Move
According to the Bank’s October 2025 Monetary Policy Report (MPR), several factors influenced the decision:
- Global slowdown: Growth expected to ease from 3.25% in 2025 to 3% in 2026–2027.
- U.S. trade tensions: Ongoing tariffs are raising consumer prices and reducing global investment.
- Canadian contraction: GDP fell 1.6% in Q2 2025, with trade-related sectors like autos, steel, aluminum, and lumber hit hardest.
- Labor market softness: Unemployment at 7.1%; hiring remains weak.
- Inflation stability: CPI inflation at 2.4%, close to the target, but core inflation remains sticky around 3%.
This decision signals the Bank’s effort to balance inflation control with growth support, ensuring Canadians maintain confidence in price stability.
Economic Outlook for 2025–2027
| Year | Projected GDP Growth | Key Drivers |
| 2025 | 1.2% | Consumer & government spending |
| 2026 | 1.1% | Gradual export recovery |
| 2027 | 1.6% | Housing & business investment rebound |
Source: Bank of Canada
Inflation is expected to remain close to 2%, aligning with the Bank’s long-term target. While the economy is operating below capacity, growth is projected to strengthen through 2026 as domestic demand stabilizes.
Impact on the Canadian Housing Market
The interest rate drop to 2.25% is expected to have several immediate and longer-term effects on the housing market:
- Improved Affordability:
Slightly lower mortgage payments could improve affordability, especially for first-time homebuyers. - Refinancing Opportunities:
Homeowners with upcoming renewals or higher-rate loans may benefit from better refinancing options. - Renewed Market Activity:
Lower rates could encourage homebuyers to re-enter the market, especially in major cities. - Mild Price Pressure:
While prices cooled in 2024, this cut could stabilize or modestly lift home prices in 2025.
Impact on Mortgage and Housing Finance Options
- Variable-Rate Mortgages: Borrowers may see immediate relief in monthly payments.
- Fixed-Rate Mortgages: Expected to trend slightly lower in coming weeks, reflecting easing bond yields.
- Refinancing & Home Equity: Lower rates make refinancing or accessing home equity more attractive.
- Real Estate Investors: Lower borrowing costs could bring investors back into the market, particularly in rental or multi-unit properties.
What This Means for Borrowers
This rate cut offers a window of opportunity for Canadians to reassess their mortgage strategies:
- Compare variable vs fixed options based on updated rates.
- Explore refinancing to lower payments or consolidate debt.
- Consider locking in lower rates before the next policy update.
Wondering when the next Bank of Canada interest rate announcement will be? The next update, expected around December 10, 2025, will provide more insights into future rate movements and their effect on mortgage affordability.
Looking Ahead
The Bank of Canada has indicated that 2.25% is an appropriate level given current economic conditions but remains ready to adjust if inflation or growth shifts. For now, the focus remains on stabilizing the economy and maintaining price confidence through this transition.
Bottom Line
The October 2025 rate cut provides meaningful support to the economy while maintaining control over inflation. For homeowners, it represents an opportunity to save on borrowing and re-enter the housing market with greater confidence.
Frequently Asked Questions
What is the difference between the Bank Rate and the policy interest rate?
The policy interest rate (often called the overnight rate) is the main tool the Bank of Canada uses to influence borrowing costs. The Bank Rate is set 0.25 percentage points higher and affects how commercial banks set their own short-term lending rates.
What is the Bank of Canada’s target inflation rate?
The Bank of Canada’s target inflation rate is 2%, the midpoint of its 1–3% control range. Adjusting interest rates helps the Bank maintain price stability while supporting steady employment and economic growth.
Why did the Bank of Canada cut the interest rate to 2.25%?
The Bank lowered its policy rate to 2.25% to support economic growth during a period of slowing global trade and weak business investment. The goal is to keep inflation near the 2% target while helping households and businesses manage higher costs and economic uncertainty.
When is the next Bank of Canada interest rate announcement?
The Bank of Canada typically announces its policy rate eight times a year. Following the October 29, 2025 update, the next Bank of Canada interest rate announcement is expected in December 2025. These regular updates help guide market expectations and borrowing decisions across the country.
How does the Bank of Canada’s interest rate affect my mortgage?
When the Bank of Canada changes its rate, variable-rate mortgages typically adjust almost immediately, while fixed-rate mortgages may shift gradually. A rate cut means lower borrowing costs, giving homeowners an opportunity to save on monthly payments or refinance existing loans.
Will the rate cut make it easier to buy a home in Canada?
Lower interest rates can improve housing affordability by reducing monthly mortgage payments. However, as more buyers re-enter the market, this can also create renewed pressure on home prices, particularly in high-demand areas such as Toronto, Vancouver, and Calgary.
How can I estimate how this rate change affects my payments?
You can use Pegasus Mortgage’s free tools to see the real impact of rate changes:
- 🏡 Mortgage Refinance Calculator – Estimate potential savings from lower rates.
- 🧾 CMHC Insurance Calculator – Understand your insurance costs when buying or refinancing a home.