Two weeks ago, we spoke about how the Bank of Canada was planning an update on the interest rate. While there was some difference of opinion, the general consensus was that the Bank of Canada would once again cut the interest rate. On October 29, 2025, they announced they would be cutting the interest rate down to 2.25%. The Bank also provided their projection for the economy through their Monetary Policy Report. Today, let’s talk about why the Bank of Canada made this decision and what their projections are.CBC says the Bank of Canada is “done cutting rates for now.” Their main motivation for the current cut is the trade war between the US and Canada as the Canadian economy weakens, although it was not 100% of the reason. Tim Macklem, the governor of the Bank of Canada, says “monetary policy cannot undo the damage caused by the tariffs” and it “cannot restore the economy to its pre-tariff path.” He also said that if inflation and economic activity follow their October predictions, they will keep the interest rate the same. Reuters said that the Bank of Canada would need to see evidence of “a materially altered economic outlook” in order to reconsider their current plans. Tim Macklem acknowledges the uncertainty inherent in this trade war and has stated they will be prepared to respond to changes should they arise.Like we spoke about a few weeks ago, the Bank of Canada was concerned about a nationwide unemployment rate that hasn’t seen such a move since the pandemic. TD’s Chief Economist Derek Burleton said the Bank of Canada made this cut as insurance amidst the still weak job market. The Bank of Canada reported that the unemployment rate stayed at 7.1% in September. Especially in sectors most directly affected by the tariffs, job loss persists and hiring remains slow. TD also said that the unemployment rate has been slowly creeping upwards but that the Bank of Canada’s Business Outlook Survey reports “soft hiring intentions and fragile consumer sentiment.” In explaining why the Bank of Canada won’t be slashing their rates anymore this year, TD points out that the unemployment rate is unlikely to rise much more given a decrease in population growth and increase in the available labor force. The Bank of Canada’s actions, according to TD, serve a risk management function.The Bank of Canada acknowledged the uncertainty and unpredictability in US trade decisions and sought to cover a wider range of risks than usual. The Monetary Policy Report states that the global economy will slow from 3.25% in 2025 to 3% in 2026 &amp; 2027.&nbsp;TD states they expect the low interest rate to stick around for “quite some time” as the economy adapts to its current trade climate.The wildcard in all of this is the Federal Budget that will be released on November 4th. All indications are that the spending proposed in the budget will be at extreme levels and as a result inflationary. It will also likely have a negative effect on the value of the Canadian dollar, also inflationary. An extra twist will be added this time in that there is no guarantee that the budget will pass. If the budget is not accepted, it will be considered a vote of non-confidence and the government will fall. An election is likely then called.If you have a fixed rate mortgage, you likely aren’t reaping the benefits from the latest rate cuts. If you have a variable rate mortgage, especially if your payments vary too, you’re going to be paying less each time. Same with HELOCs and other variable revolving credit. We’ll see if the budget allows it to stay that way.

Bank of Canada Cuts Rates to 2.25%: A Final Move before Fiscal Fireworks?

Bank of Canada cuts rate to 2.25%, signaling a pause amid trade tensions, job market weakness, and looming fiscal uncertainty.

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