As the days get shorter and chillier, Canada’s economy also cooled in September from August, pointing to an expected cut of .25% to the Bank of Canada’s overnight rate on Oct. 29, taking the rate to 2.25% from 2.5%.
StatCan’s initial estimate for September’s retail sales is a drop of 0.7%, which will likely look weaker in volumes, due to increases in prices.
“Despite a decent August report, the disappointing September flash highlights the underlying weakness in Canadian retail spending,” Shelly Kaushik, senior economist at Bank of Montreal, told Canadian Mortgage Professional (CMP).
“Net risks remain to the downside given ongoing trade uncertainty, keeping the Bank of Canada on its dovish path. We continue to believe that the bank isn’t done easing just yet.”
According to CMP, Andrew Grantham, senior economist at CIBC Capital Markets said, “retail sales volumes haven’t changed much since December, a reflection of weak consumer confidence because of US tariff uncertainty and a softer job market, which would justify an intertest rate cut.”
Bradley Saunders, North America economist at Capital Economics, told CMP, “The solid rebound in retail sales in August will not do much to spare the economy from a sharp slowdown in consumption growth in the third quarter given the similar-sized fall in sales expected in September.”
Supporting a Bank of Canada cut is Prime Minister Carney’s pre-budget warning that “Canadians will have to make sacrifices.”
“Evidence of a sputtering economy will likely compel the Bank of Canada to cut its benchmark rate a second consecutive time next week,” says Penelope Graham of Ratehub.ca.
“Business sentiment continues to be low, with the bank’s latest survey indicating firms don’t expect to hire next year, and that exports will continue to be squeezed by ongoing trade uncertainty.”
While expecting a cut on Oct. 29, Graham doesn't rule out further cuts this year.
“Whether or not the bank will cut further in 2025 will depend on how the data, and overall economic capacity develop. If they choose to hold off on an October decrease to keep their powder dry, a December cut is all the more likely,” she says, adding, “the 2026 rate outlook is less certain; the risks from the evolving trade scenario still present inflation headwinds, especially if CUSMA is not renegotiated in Canada’s favour.
The chance that rates could point higher again in the latter half of the year is a possibility that can’t be ruled out.”
Bond yields, which affect fixed mortgage rates, have pushed lower, with the Canadian government’s five-year yield in the 2.5% range this week, says Graham, which, with the US 10-year treasury benchmark below 4%, sets the stage for lower fixed mortgage rates.
“Already, lenders have responded, with the lowest five-year fixed insured mortgage rate now at 3.79%, just nine basis points higher than the lowest variable-rate option,” she says. “Getting a pre-approval is key for anyone currently rate shopping, to preserve both current rate discounts and spread to prime.”
“Further rate cuts will likely spur more activity in the housing market. Now that buyers’ confidence appears to be returning, many are simply waiting for affordability conditions to improve. Lower mortgage rates will incentivize pent-up demand to return to the market, should borrowers' costs better align with budgets.”
A rate cut will lower variable mortgage rates, says Graham, using an Alberta example.
“According to Ratehub.ca's mortgage payment calculator, a homeowner who put a 10% downpayment on a $499,278* home with a five-year variable rate of 3.79%, amortized over 25 years, for a total mortgage amount of $463,280 has a monthly mortgage payment of $2,384,” she says. “If the Bank of Canada announces a 25-basis point rate cut, that homeowner’s variable mortgage rate will decrease to 3.54% and the monthly payment will decrease to $2,323.”
*The average home price in Alberta for September 2025 (Canadian Real Estate Association)
