Bank of Canada October Rate Upate

Bank of Canada Cuts Overnight Rate to 2.25%: What It Means for You

The Bank of Canada has lowered its overnight rate by 0.25%, bringing it down to 2.25%. This decision comes as the economy shows clear signs of slowing and the job market continues to soften.

Markets were expecting this move, and it confirms that the Bank is shifting focus from fighting inflation to supporting growth. But what does this mean for you as a mortgage borrower? 

What the Rate Cut Actually Means

The overnight rate is the interest rate that banks use when lending money to each other. It’s the Bank of Canada’s main tool to influence borrowing costs in the economy.

This is not a rate that consumers can get. What affects your mortgage is the prime rate, which moves when the Bank changes the overnight rate. With today’s announcement, the prime rate is now 4.45%, down from 4.70%.

That means this change will affect anyone with a variable-rate mortgage or line of credit. Fixed mortgage rates, on the other hand, follow bond market trends, not the Bank of Canada’s rate decisions. 

What It Means for Mortgage Borrowers

If you have a variable-rate mortgage, this cut will slightly lower your interest costs. On average, a 0.25% reduction means about $15–$18 less per month for every $100,000 borrowed.

So, if your mortgage balance is $500,000, your monthly payment could drop by roughly $75–$90, depending on your lender and amortization.

It’s not a huge change, but it’s a step in the right direction. After several years of higher rates, many homeowners will welcome even a small break.

If you have a fixed-rate mortgage, this change doesn’t affect you right away. However, if the economy continues to slow, bond yields could drop — and that may bring fixed mortgage rates lower in the months ahead. 

Why the Bank of Canada Made This Move

This decision is a response to signs that the economy is losing steam. Businesses are hiring less, job vacancies are down, and unemployment is slowly rising. At the same time, inflation has not fallen as much as expected.

The Bank of Canada is trying to balance these two issues — keeping prices stable while preventing the economy from slipping too far.

The chart below (from Trading Economics) shows that core inflation has been rising even as unemployment increases. That’s a worrying mix. Normally, inflation eases when the job market weakens, but that hasn’t been happening lately.

This trend points to what economists call a “slower economy with sticky inflation,” which can be one of the most difficult situations for central banks to manage.

Governor Tiff Macklem has said the Bank is ready to cut rates if needed, but he has also warned that inflation could pick up again if policy loosens too quickly. 

Looking at Core Inflation: The CPI Trimmed Mean

The CPI Trimmed Mean is one of the Bank of Canada’s preferred measures of inflation. It removes the most extreme price changes and focuses on the middle range — the part that best reflects overall price trends.

As of September 2025, the CPI Trimmed Mean sits at 3.1%, up from 2.6% at the end of 2024. That tells us that while inflation isn’t as high as it was during the pandemic recovery, it’s still above the Bank’s 2% target.

This shows why the Bank won’t rush to cut rates aggressively. Even though the economy is slowing, inflation isn’t fully under control yet. The Bank is walking a fine line — lowering rates to support growth, but not so much that inflation flares up again. 

The Bigger Picture: What’s Happening in the U.S.

The United States is in a similar position. The Federal Reserve is expected to make a 0.25% cut this week as well.

Both economies are facing slower job growth and lower business activity, but inflation is still higher than their comfort zones. By easing rates slightly, both central banks are hoping to give their economies a gentle boost without reigniting inflation.

Because Canada and the U.S. are closely connected through trade and financial markets, their interest rate paths often move in the same direction. When one makes a big move, the other usually follows — otherwise, it can create unwanted pressure on exchange rates and investment flows.

If you are like me, and you like to look at numbers, here is a table summarizing the Prime Rate changes in Canada from 2010 to today: 

What Borrowers Should Watch For

If you have a mortgage or plan to buy a home soon, here’s what this means for you:

1. Variable-rate borrowers: You’ll see a small drop in payments right away. If the Bank cuts rates again in the coming months, the savings will increase.

2. Fixed-rate borrowers: Your current rate won’t change, but fixed rates could fall later if bond yields keep dropping. That could open up refinancing opportunities down the road.

3. Buyers planning a purchase: Lower borrowing costs can improve affordability slightly, but don’t rush to assume rates will fall sharply. The Bank is likely to move gradually.

4. Renewals and refinances: If your mortgage is coming up for renewal, it’s a good time to review your options. Securing a shorter term or choosing a variable option might make sense depending on your risk comfort. 

What to Expect Next

This rate cut is likely the first of several small moves designed to ease pressure on households and businesses. The Bank will keep a close eye on inflation and job numbers in the months ahead.

If inflation continues to cool and unemployment rises, more cuts could follow. But if prices stay stubborn, the Bank may pause before taking further action.

Either way, the message is clear: the era of rapid rate hikes is behind us. Now the focus is on helping the economy regain balance without letting inflation heat up again.

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