Bank of Canada reduces key interest rate - Sep 17, 2025

This morning, the Bank of Canada announced a decrease in its key interest rate by 0.25%. The prime rate has decreased from 4.95% to 4.70%. As a result, variable-rate mortgage holders will see a decrease of approximately $15.34 per month for every $100,000 of mortgage.

Global Economy

Global economic growth is starting to slow down after staying strong despite higher U.S. tariffs and uncertainty. In the U.S., businesses are still investing, but consumers are being more careful, and job growth has slowed. Inflation has gone up because companies are passing some of the extra costs from tariffs on to customers. In Europe, growth has slowed as U.S. tariffs hurt trade. In China, the economy did well in the first half of the year but is now slowing as investment drops. Oil prices are about the same as they were in July, and financial conditions have improved, with higher stock prices and lower bond interest rates. The Canadian dollar has stayed stable compared to the U.S. dollar.

Canada’s Economic Performance

Canada’s economy shrank by about 1.5% in the second quarter, as expected. Tariffs and trade uncertainty are weighing heavily on economic activity. Exports fell by 27% after a big jump earlier this year when companies rushed to ship products before tariffs took effect.

Business investment also dropped, though consumer spending and housing activity grew at a solid pace. In the coming months, slower population growth and a weaker job market will likely reduce household spending.

Employment and Labour Market

Employment has declined over the past two months, mostly in industries affected by trade issues. Job growth in other parts of the economy has also slowed because companies are hiring less. The unemployment rate rose to 7.1% in August, and wage growth has eased.

Inflation

Inflation (CPI) was 1.9% in August, about the same as in July. Without taxes, it was 2.4%. Core inflation has been around 3% lately, but the strong increases seen earlier this year have leveled off.

Overall, indicators suggest that underlying inflation is around 2.5%. The federal government recently removed most retaliatory tariffs on U.S. goods, which should help prevent further price increases.

Policy Response and Outlook

Because the economy is weaker and inflation risks are lower, the Bank decided to lower interest rates to help balance things out. Looking ahead, trade changes will likely keep adding costs while slowing the economy.

The Bank is being cautious and watching how U.S. tariffs and changing trade relationships affect exports, business investment, jobs, household spending, and prices. They also want to see how people’s expectations about inflation change.The Bank's main goal is to keep prices stable and support economic growth during this period of global uncertainty, while ensuring inflation remains controlled.

The next Bank of Canada announcement will be on Oct 29, 2025.

Interest rates have dropped significantly from a year ago, and the market has changed a lot. I've been doing a lot of mortgage reviews lately and finding opportunities for clients to save thousands of dollars. If you'd like to see how much you could save, let's chat! Book an appointment with us here.