The Bank of Canada lowered its overnight policy rate by 25 basis points this morning from 2.5% to 2.25%.  In the statement accompanying the decision, the Bank noted that GDP growth is expected to be weak over the second half of 2025 but will get some support from rising consumer and government spending as well as residential investment. However, the labour market remains soft with unemployment at 7.1%. The Bank expects the Canadian economy to expand by 1.2% this year, followed by similarly weak growth of 1.1% in 2026 before picking up slightly to 1.7% in 2027.  On inflation, the Bank sees underlying inflation steady at around 2.5% and expects inflationary pressures to ease in the months ahead. Finally, the Bank provides some forward-looking guidance on rates stating that if economic activity evolves broadly in line with its current projection, it judges the current policy rate of 2.25% as the right level to keep inflation at its 2% target.

The Bank appears reassured that it can focus on supporting the economy through rate-cuts without risking an acceleration of inflation, particularly given Canada is dropping most of its retaliatory tariffs. At 2.25%, the overnight rate is at the bottom threshold of what the Bank considers neutral for the economy, and adequate to keep inflation at 2%. Given a still uncertain outlook and the potential for further disruptions to trade policy, we anticipate the Bank may need to cut at least one more time over the next six months.

Copyright British Columbia Real Estate Association. Reprinted with permission.