Bank of Canada drops overnight rate to 2.5% at the September meeting
Job losses and high unemployment were behind the rate cut announced at Wednesday’s meeting. Our central bank felt that inflation was sufficiently tamed enough to warrant a cut in the face of 100,000 job losses in the past 2 months. There’s little question the tariff war is starting to bite consumers which is why the federal government decided to roll back retaliatory tariffs against the US. Here are some excerpts from the press release
Employment has declined in the past two months since the Bank’s July MPR was published. Job losses have largely been concentrated in trade-sensitive sectors, while employment growth in the rest of the economy has slowed, reflecting weak hiring intentions. The unemployment rate has moved up since March, hitting 7.1% in August, and wage growth has continued to ease.
CPI inflation was 1.9% in August, the same as at the time of the July MPR. Excluding taxes, inflation was 2.4%. Preferred measures of core inflation have been around 3% in recent months, but on a monthly basis the upward momentum seen earlier this year has dissipated. A broader range of indicators, including alternative measures of core inflation and the distribution of price changes across CPI components, continue to suggest underlying inflation is running around 2½%. The federal government’s recent decision to remove most retaliatory tariffs on imported goods from the US will mean less upward pressure on the prices of these goods going forward.
With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks. Looking ahead, the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties. Governing Council will be assessing how exports evolve in the face of US tariffs and changing trade relationships; how much this spills over into business investment, employment, and household spending; how the cost effects of trade disruptions and reconfigured supply chains are passed on to consumer prices; and how inflation expectations evolve.
The lowest available October 2025 rates are:
1-year fixed insured 4.69%
2-year fixed insured 4.29%
3-year fixed insured 3.64%
4-year fixed insured 3.99%
5-year fixed insured 3.79%
5-year variable insured 3.60%
Is the mortgage stress test still a thing in 2025? Yes it is, and with the higher rates we’ve seen, it’s even harder to qualify for a mortgage. The rules require you to qualify at either 2% above the rate your lender is offering you or 5.25%, whichever is higher.
Being forced to qualify at the higher stress test rate causes the principal portion of your monthly mortgage payment to shrink, lowering the maximum amount you’ll be allowed to borrow for your mortgage. But the rate you’ll actually pay once you buy is the rate you are offered by your lender. Your monthly payments will be calculated from this lower rate, not the stress test rate. As a result your monthly mortgage bill will be smaller too.
The stress test has been quite unpopular so the federal government has rolled out several new changes to make it easier to buy a home. They are now offering a first time buyer’s credit of $5000, and an increase in withdrawals from your RRSP to $35,000.
In addition existing borrowers are no longer required to re-qualify at the stress test rate when they renew or refinance their mortgages. This will allow borrowers some flexibility if they want to choose a different lender as they are no longer under the pressure of qualifying at an additional two percentage points.
If you’re looking for mortgage info or help please reach out.
