After months of hesitation, the Bank of Canada has finally eased its policy stance, cutting the key interest rate by 25 basis points to 2.5% on September 17, 2025. The move came after three consecutive holds, reflecting growing concern over a slowing economy, rising unemployment, and the ongoing impact of U.S. trade tariffs.As we noted in last month’s update, most economists had already called this outcome. Canada’s unemployment rate has risen to 7.1%, with much of the job loss concentrated in sectors tied to the U.S. - Canada trade friction, but not exclusively. Business investment has also slipped sharply, down 27% in Q2,&nbsp;signaling weakened confidence among corporate leaders.These factors, among others, are evidence of a weak economy and the central bank acknowledged its influence in their decision by stating that “with a weaker economy and less upside risk to inflation, the governing counsel judged that a reduction in the policy rate was appropriate to better balance the risks.”&nbsp;Bank of Canada Governor Tiff Macklem acknowledged the situation: “I think what tipped the balance really in favor of a cut at this time was there was a clear sense that the balance of risk has shifted. The labor market is soft and the inflation picture hasn’t really changed a great deal since where we were last January.” He very stated that “tariffs are weakening the Canadian economy” and that monetary police cannot reverse trade friction caused by these tariffs but that what he can do “is help the economy adjust while maintaining well-controlled inflation.”The next Bank of Canada interest rate announcement will take place on Wednesday, October 29, 2025. The Bank of Canada will be publishing an economic forecast at their interest rate decision announcement. Tiff Macklem stated that uncertainty stemming from the Trump tariffs has decreased slightly, saying “uncertainty about the stability and the trajectory of the global economy is still high, but we have avoided the worst-case scenarios.” He says that risks remain, and that the Bank of Canada “will need to be humble about our forecasts.”RBC Economics predicts that the interest rate will be cut again this October. RBC says “it is unlikely that policymakers cut rates in September expecting that just one 25 basis point reduction would be sufficient.” Canadian Mortgage Trends says that a stronger job report in September could derail an October cut, but RBC says the complete opposite. CTV cited TD’s senior economist, Andrew Hencic, who predicts another cut is to come in October. He says the rate cut “should be at the lower end of the 2% range to address Canada’s lingering economic weakness and low business investments that have been exacerbated by the trade war.” The consensus among economists seems to be that the interest rate will be cut once again this October.The wild card impacting this rate decision is the Government of Canada’s budget scheduled for release November 4, 2025. It is widely believed that the deficit will be aggressively over previous forecasts. The Bank of Canada will need to assess the inflationary impact of the budget announcements against their own actions. With a significant deficit and a potentially weakening Canadian dollar, while we agree that a rate cut is needed, it is not as easy as it first seems.

October 29 Looms: Will the Bank of Canada Cut Rates Again?

Economists expect another Bank of Canada rate cut this October as growth slows, unemployment rises, and investment weakens.

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