Bank of Canada cut rate once again! Real estate market is starting to roar

The Bank of Canada implemented a reduction in its benchmark interest rate, bringing it down to 2.25%. The central bank indicated that, barring any unforeseen economic shifts, it considers the current monetary policy stance to be “appropriately” calibrated.

Citing persistent negative effects from U.S. tariff policies, the Bank of Canada proceeded with a 25-basis-point cut to its overnight lending rate during the October 29th policy meeting. This marks the second consecutive rate reduction, placing the key rate at its lowest point since July 2022.

The central bank also issued a substantial downward revision to its growth projections, presenting a more pessimistic outlook for the Canadian economy. In prepared remarks, Governor Tiff Macklem characterized the trade dispute with the U.S. as a “structural shift” that has “diminished Canada’s economic prospects.”

However, the institution pushed back against market expectations for an imminent further easing cycle. It stated that the current policy rate is “roughly at the right level” to maintain inflation close to the 2% target while supporting the economy through a period of adjustment. This assessment is contingent upon inflation and economic activity evolving in line with the bank’s forecasts.

The bank affirmed, “Should our projections change, we are prepared to take action.” Following this communication, market participants significantly scaled back their expectations for an additional rate cut in December.

Governor Macklem also acknowledged that the bank’s preferred core inflation measures have remained “sticky” around 3%, but reiterated that the “upward momentum has dissipated,” with the bank anticipating core inflation to settle around 2.5%.

The Bank’s forecast indicates the economy will operate with excess supply throughout the projection horizon. Policymakers also downgraded their growth forecast for the second half of 2025 to 0.75%. Macklem stated that the bank estimates the economy will be 1.5% smaller by the end of 2026 than was projected back in January.

With no imminent resolution to the U.S. tariffs, the Bank of Canada has reverted to presenting a baseline economic forecast in its quarterly Monetary Policy Report, after employing scenario analysis in April and July to model the trade uncertainty impacting Canada.

“Now that the tariffs are in place and U.S. protectionist policies appear entrenched, the impact on Canada has become more evident, even as the potential for future tariff escalations remains a uncertainty,” Macklem commented.

Nevertheless, he reiterated that significant uncertainty surrounds the projections. “The range of potential outcomes is wider than usual—we must maintain a degree of caution regarding our forecast,” he added.

The next scheduled policy meeting for the Bank of Canada is on December 10th.