Bank of Canada Expected to Cut Rates Again Despite Economic Resilience
Maxco Futures – October 27, 2025
The Bank of Canada (BoC) is widely expected to lower its benchmark interest rate once again this week, even as Canada’s economy continues to show resilience across several key sectors.
Most economists anticipate a 25-basis-point cut to 2.25%, extending the easing cycle that began in September and marking the formal end of the tightening phase that started in March.
This move reflects the delicate balance between persistent inflationary pressures and signs of broader economic slowdown.
Recent labor market data showed an increase of roughly 60,000 jobs in September, though the overall labor market has remained stagnant this year, with unemployment steady at 7.1%.
Meanwhile, headline inflation climbed to 2.4% from 1.9% in the previous month, and core inflation remains above 3%.
While such figures suggest caution, many analysts believe the BoC must continue easing to sustain economic momentum.
Doug Porter, Chief Economist at BMO, noted that the central bank needs to give the economy room to recover:
“We’re seeing a fragile labor market, ongoing trade uncertainty with the U.S., and declining business confidence. The BoC must keep easing,” he said.
According to LSEG Data & Analytics, market odds of a rate cut now exceed 80%.
RBC economists Nathan Janzen and Claire Fan added that signs of softening labor conditions and lower inflation expectations in BoC’s business survey provide sufficient justification for a looser monetary stance.
However, they cautioned that further cuts beyond this one would likely depend on a sharper-than-expected downturn in the coming months.
Housing Market Recovery Remains Fragile
The impact of BoC’s monetary easing on Canada’s housing market is expected to remain limited. Lower borrowing costs have yet to trigger a meaningful rebound in housing demand.
Economists cite job insecurity and ongoing U.S.–Canada trade uncertainty as the main factors dampening new home purchases.
This highlights the diminishing effectiveness of monetary policy, particularly as structural headwinds — such as weak consumer sentiment and external trade pressures — continue to dominate.
“Lower rates help, but they’re not a cure-all,” Yahoo Finance wrote.
“As long as global and labor market outlooks remain fragile, housing activity will stay cautious.”
Awaiting Fiscal–Monetary Synergy
The BoC is set to announce its latest rate decision ahead of the federal government’s Fall Budget on November 4, which could introduce new fiscal stimulus measures.
Porter emphasized that both fiscal and monetary policies need to ‘row in the same direction’ to support the broader economy.
BMO expects the BoC to continue easing until the benchmark rate reaches around 2.0%, marking the likely bottom of this cycle.
However, with major automakers such as Stellantis and GM shifting parts of their operations to the U.S., pressure on the manufacturing sector is intensifying — underscoring Canada’s vulnerability to external shocks.
The BoC last cut rates on September 17, 2025, by 25 basis points to 2.50%, with the Bank Rate at 2.75% and the Deposit Rate at 2.45%.
That move reflected the need to balance slowing economic activity with inflation still above target.
Economic Outlook
- Inflation: The BoC expects inflation to hover near its 2% target over the medium term.
- GDP Growth: Independent forecasts — such as from Vanguard — project modest GDP growth of around 1.25% in 2025, with the unemployment rate easing to 7.3% by year-end.
- Housing Starts: Canada recorded 245,000 housing starts in August 2025, down 16% from the previous month, reflecting cautious sentiment in the construction sector.
- The BoC noted that “economic activity is slowing but remains resilient,” while continuing to monitor core inflation pressures.
Housing Market Conditions
- According to the Canadian Real Estate Association (CREA), the national average home price stood at CAD 682,600 in September 2025, down 3.4% year-on-year.
- Home sales rose modestly by 1.9% month-over-month, though recovery remains uneven across regions.
- In provinces such as Ontario and British Columbia, market conditions are weaker, with steeper expected price declines.
- Royal Bank of Canada (RBC) forecasts that home prices will edge up 0.7% in 2025, followed by a 0.7% decline in 2026.
Policy Implications
The BoC continues to navigate a challenging policy landscape.
On one hand, the labor market remains fragile — with unemployment near 7.1% and ongoing trade risks tied to U.S. policy.
On the other, core inflation remains above target, meaning overly aggressive rate cuts could reignite price pressures later on.
With the current policy rate at 2.50%, most economists expect the terminal rate for this easing cycle to settle around 2.00%–2.25%.
However, the effectiveness of this policy in reviving housing demand is expected to be gradual, given persistent structural challenges such as low consumer confidence, high household debt, and elevated housing supply.
The BoC is also awaiting the impact of forthcoming fiscal measures, including the Fall Budget, as coordinated monetary and fiscal efforts are seen as key to achieving a sustainable recovery.
Ade Yunus, ST WPA
Global Market Strategies