Sunita Somvanshi
The Bank of Canada is expected to cut its key interest rate by 0.25 percentage points on September 17, marking another reduction in its easing cycle. The anticipated move comes as Canada’s economy faces mounting challenges, including significant job losses and weakening economic activity.
Nearly 80% of economists polled by Reuters predict the central bank will lower its overnight rate to 2.50%, in line with market expectations. This follows a concerning economic report showing Canada shed 65,500 jobs in August, pushing unemployment to 7.1% – the highest in nine years outside pandemic periods.
Canada’s economy also contracted by 1.6% in the second quarter, a sharper decline than experts predicted. Many analysts link this downturn partly to U.S. tariffs affecting Canadian exports of steel, aluminum, and automobiles.
“The August job print should give the Bank of Canada more conviction that the outlook has softened,” said Robert Both, macro strategist at TD Securities. “Even though not all details were as poor as the headline print, it will be hard for the BoC to look past more evidence of labour market deterioration.”
Most experts believe this won’t be the only rate cut this year. Over 70% of economists expect the central bank to lower rates by at least half a percentage point by year-end, bringing the key rate to 2.25% or lower.
The Bank of Canada’s decision comes on the same day the U.S. Federal Reserve is widely expected to cut its own rates for the first time in 2025. However, the drivers behind these moves differ significantly. While Canada faces clear economic weakness, the U.S. is dealing with mixed signals – inflation creeping up even as revised job data shows weaker growth than previously thought.
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For Canadians with variable-rate mortgages, a rate cut would bring welcome relief. The potential easing has already influenced bond yields, which impacts mortgage rates. Further cuts could modestly thaw housing activity if the trend continues.
“With August CPI coming the day before the policy announcement, a rate cut isn’t a certainty, but it would take a hot print for the BoC to forego easing,” noted Benjamin Reitzes, Canadian rates and macro strategist at BMO.
That inflation report, due September 16, could influence the Bank’s decision. While headline inflation has stayed within the central bank’s 1-3% target range since January, core inflation remains stubbornly above target at around 3%.
This persistent inflation explains why some analysts don’t expect aggressive rate cutting. “Even with weak real GDP momentum and further deterioration of labour market conditions, surveys show that Canadian CPI inflation is unlikely to fall significantly,” economists at Laurentian Bank Securities noted. “This rules out a 50 basis point cut in a single meeting.”
The Bank of Canada’s rate announcement will come at 9:45 a.m. ET on September 17, followed by a press conference with Governor Tiff Macklem and Senior Deputy Carolyn Rogers at 10:30 a.m. ET.
For those watching their mortgage rates or considering home purchases, these developments signal that borrowing costs are trending downward, though the pace remains measured as the central bank balances economic support against inflation concerns.
