Bank of Canada Lowers Policy Rate!
Bank of Canada Lowers Policy Rate!
Date Posted: September 17, 2025
📉 Big News: BoC Lowers Policy Rate to 2.50%
Today, the Bank of Canada cut its policy interest rate by 25 basis points (0.25%), bringing it down from 2.75% to 2.50%. It’s the first cut in about six months, putting the rate at a three-year low.
Why They Did It
Here are the key reasons BoC made this move:
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Weakening Economy & Job Market
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Canada has seen a contraction in GDP in Q2, and signs that growth is slowing.
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The labour market is softening: job losses, slower hiring, rising unemployment.
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Inflation Easing & Fewer Upside Risks
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Inflation pressures are still there, but some of the more aggressive or worrying “upside risks” are diminishing.
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Removal of many retaliatory tariffs by Canada has lessened potential inflation-pressure via import costs.
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Balancing Risks
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BoC is trying to walk a tightrope: protect against inflation running too hot, but also avoid pushing the economy too hard into recession.
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The “neutral” rate (where the policy neither stimulates nor restricts the economy) appears to be in a range such that 2.50% is closer to “less restrictive” territory than where we’ve been.
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What This Means for People with Mortgages / Looking for One
This rate cut has different implications depending on what kind of mortgage you have or what you’re planning. Here’s a breakdown:
| Mortgage Type | What Changes Now / Soon |
|---|---|
| Variable rate mortgages | These will usually benefit most directly and immediately. The prime rate often tracks the policy rate, so when the BoC drops the policy rate, banks may lower their prime, meaning your interest costs should come down. That can mean lower monthly payments, or the same payment but more of it going toward principal (i.e. paying down your loan faster). |
| Fixed rate mortgages (new or renewing) | Less immediate effect, because fixed-rate mortgages are determined largely by longer-term bond yields. If investors believe future rates will stay lower (because inflation looks manageable, economy weaker, etc.), bond yields may fall and fixed mortgage rates might gradually drop. But don’t expect big, near-term changes just from this one cut. |
| Mortgage renewals | For those renewing, especially if you renew into another fixed-term right now, your rate may still be higher than what some variable or short-term fixed rates could offer. Even with this cut, many fixed rates (especially 5-year fixed) remain elevated compared to earlier years. Renewals could moderate somewhat if lenders anticipate more cuts, but there’s often a lag. |
| People looking to get a mortgage now | This is a somewhat more favourable moment. Variable-rate mortgages could look more appealing. Fixed rates may not drop dramatically immediately, but the general environment is easing. That said, affordability is still a concern, especially for high-purchase price markets. Also, lenders will still stress test you at higher rates (to make sure you can afford payments even if rates go up) so your ability to qualify might not shift drastically. |
Things to Watch Out For / Caveats
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Lag Effects: Even once rates are cut, the impact flows through the economy slowly. Real estate, lending, and inflation responses take time.
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Fixed Rates Won’t Drop Instantly: Because fixed rates depend on long-term bond yields, which depend on market expectations (inflation, economic growth, etc.), fixed mortgage rates might stay relatively high until there is sustained evidence of lower inflation and weaker economic growth.
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Renewal Shock: Many Canadians will be renewing their mortgages in the next year or two. A lot of those mortgages were entered when rates were much lower. Even with rate cuts, renewal rates might still be significantly higher.
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Housing Affordability & Prices: Lower interest costs can stimulate demand for houses (cheaper borrowing), which can push house prices up, especially in markets with tight supply. So while borrowing is more affordable in theory, the price of what you’re borrowing for may rise.
Bottom Line
This rate cut is a signal: the BoC is seeing enough evidence of economic softness, easing inflation pressure, and fewer risks from abroad (trade, tariffs) that it believes some relief is warranted. For mortgage holders, especially variable-rate ones, it’s welcome news — costs may ease. For fixed-rate borrowers or those renewing, there may be some relief coming, but not as immediate or dramatic.
If you’re in the market now, it may be a good time to review your mortgage structure (fixed vs variable), inspect renewal terms, and see whether you can lock in favorable terms or refinance beneficially.