The Bank of Canada cut its rate by .25% on Wednesday, taking it to 2.5%, and while the cut was widely expected by economists, the tone of the announcement caught the attention of Doug Porter, chief economist at BMO.
Porter told Canadian Mortgage Professional the bank’s language gave little indication of the possibility of additional cuts this year.
“I found the language to be incredibly careful,” said Porter. “There were no promises on that front. They kept mentioning their short-term focus and to me, that means they’re basically going to react to how the data and events unfold in the next six weeks. And the next meeting is only six weeks away, so that’s a pretty tight timeframe.”
Porter said he believes the bank will leave the rate unchanged in October, cutting in December, holding in January and lowering again in March.
“The bank certainly did nothing to quash the possibility of further cuts,” he said. “It’s just they didn’t exactly encourage them either.”
Porter said his caution comes from the bank not appearing to be comfortable with the outlook for inflation, which rose slightly to 1.9% in August.
The move by the US Fed to cut its rate as well on Wednesday may give the Bank of Canada some room to not rush further cuts.
“The bank has shown in recent years that it’s not going to doggedly follow the Fed step by step. They actually got well ahead of the Fed on the way down here,” Porter said. “So, they’re not necessarily going to be dictated by what the Fed does. But I would say there are two reasons why the Fed easing makes their job easier.”
“The first is, if the Fed is actually responding to what it believes is a weaker growth backdrop and a milder inflation backdrop, then the Bank of Canada would be responding to more or less the same signals. But second, with the Fed easing, it does take some more of the potential downward pressure off the Canadian dollar than if the bank was going it alone.”
Penelope Graham, of Ratehub.ca., said the Bank of Canada cut was based on a slowing economy and a job market in reverse.
“The Bank of Canada lowered its overnight lending rate as a response to growing evidence that tariffs are slowing the economy,” said Graham. “In particular, the bank pointed to the slowing job market and trade disruptions as headwinds facing economic growth, and that previous resilience to these factors is starting to dwindle.”
“The bank has left the door open to the possibility of further rate cuts, though these will depend heavily on how the shifting trade scenario continues to impact Canadian businesses, investment and household spending. Further weakness in these data sets would likely prompt at least one more cut this fall,” she said, adding, “The bank also pointed to some progress in inflation, saying the broader upward momentum seen earlier this year has dissipated, and that the core measures have remained stable. As long as this remains the case, the central bank will have room to cut further.”
The bank’s cut will lower variable rate mortgage costs, said Graham.
“The best five-year variable rate will lower, increasing the spread between the best five-year fixed rate option. Given the growing narrative that rates will continue to lower in the coming months, a variable mortgage can be an attractive option for price-sensitive borrowers; however, this is always dependent on the borrowers’ risk tolerance.”
“The Government of Canada five-year bond yield, which lenders use to price their five-year fixed mortgage rates, has remained in the 2.6 to low 2.7% range. Some lenders have already lowered their fixed mortgage rates and more could follow if yields continue to fall in line with dovish central bank sentiment.”
The cost of an average mortgage in Alberta will go down, said Graham.
“According to Ratehub.ca's mortgage payment calculator, a homeowner who put a 10% downpayment on a $502,066* home with a five-year variable rate of 3.95% amortized over 25 years (total mortgage amount of $465,867) has a monthly mortgage payment of $2,438,” she said. “With the 25-basis point rate decrease, their variable mortgage rate will decrease to 3.7% and their monthly payment will decrease to $2,375, meaning the homeowner will pay $63 less per month or $756 less per year on their mortgage payments.”
*The average home price in Alberta for July 2025 (CREA)