Bank of Canada raises the bar for any future rate cuts, economists say

A man speaks on the phone as he walks past the Bank of Canada in Ottawa on Wednesday, Sept. 17, 2025. THE CANADIAN PRESS/ Photo by Adrian Wyld/The Canadian Press files

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Economists say the Bank of Canada‘s latest 25-basis-point cut to its benchmark interest rate to 2.25 per cent means the economy will have to materially miss the outlook for growth and other metrics for policymakers to cut again soon.

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The Bank of Canada said monetary policy can only do so much to shield to the economy given the major changes it is undergoing due to the United States trade war.

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“If inflation and economic activity evolve broadly in line with the October projection, the Governing Council sees the current policy rate at about the right level to keep inflation close to two per cent while helping the economy through this period of structural adjustment,” it said in a statement.

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The Bank of Canada forecasts the Canadian economy will grow by 1.2 per cent in 2025, 1.1 per cent in 2026 and 1.6 per cent in 2027.

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Here’s what economists said about the latest rate decision and where rates go from here.

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‘Last rate cut’: Oxford Economics

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“The second consecutive 25-basis-point rate cut brings the policy rate to the low end of the (Bank of Canada’s) 2.25 per cent to 3.25 per cent neutral range estimate, which is modestly stimulative for the economy in our view,” Tony Stillo and Michael Davenport, economists at Oxford Economics Ltd., said in a note.

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Canada’s inflation figures for September came in stronger than expected, but instead of focusing on the headline number of 2.4 per cent, policymakers turned their attention to cooling core inflation, growing slack in the job market and sluggish economic growth, the pair said.

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“This will likely be the last rate cut of this cycle for the Bank of Canada,” they said, adding that if the economy or the job picture weakens again, policymakers could see their way to another cut to bring rates to two per cent.

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“Still, we don’t think it will cut rates deeply into stimulative territory well below two per cent,” they said, given the trade war uncertainty and the lurking risk of rising inflation.

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Instead, stimulus from the federal budget coming on Nov. 4 “will do most of the heavy lifting to support the economy,” they said.

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‘Higher bar’: Desjardins

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“The Bank of Canada lowered its policy rate another 25 basis points to support the ailing economy, but signalled there’s a high bar for further action,” Royce Mendes, head of macro strategy at Desjardins Group, said in a note.

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He said the Bank of Canada’s projections for economic growth were “relatively tame” and suggest it will take a lot, including a prolonged period of weakness or a new shock, for policymakers to move off the sidelines.”

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Desjardins said the risks for the economy and inflation are elevated, but has moved off its previous base case for another rate cut.