EconoFACTS

October 29, 2025 | 10:19

BoC Decision and MPR — Cut and Done?

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

The Bank of Canada cut its overnight lending rate by 25 bps, to 2.25%, as widely expected, with an eye on still-elevated uncertainty and downside risk stemming from the tariff situation. The tone of the statement reads as such, but the Bank acknowledges quite clearly that this might be it for rate cuts, for now:

They say that, “if inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment”.

In recent weeks, we’ve noted items on both the dovish and hawkish sides of the ledger, and the former have proven to be larger and more upfront, promoting this rate cut:

Growth continues to run below potential, and the Bank expects that to continue into 2026.
The job market has been sluggish, as evidenced by a 7.1% unemployment rate and a handful of weak signals in the latest Business Outlook Survey.
Trade uncertainty is clearly ongoing, with any optimism surrounding even a near-term framework of a Canada-U.S. deal kicked down the road in recent days.

On the more hawkish side, and setting up a BoC pause from here:

Inflation came in firmer than expected in September, and the Bank continues to believe that underlying core inflation is running around 2.5%. But, the broad view is that inflation in on it’s way back to the 2% target.
A wave of fiscal stimulus is set to hit the economy, and the Bank has talked up the necessity of fiscal policy to lead in this environment, rather than blunt rate cuts. Indeed, Governor Mackelm’s opening statement notes the structural nature of this slowdown, which “limits the ability of monetary policy to boost demand while maintaining low inflation”.

On the outlook, the Monetary Policy Report has returned to a base-case economic outlook rather than a set of scenarios. Real GDP growth is pegged at 0.5% for Q3, revised down slightly from 1.0% in the prior edition (BMO is also at +0.5%). Growth is then expected to pick up to 1.0% in Q4 (BMO is at +1.5%), leaving full-year 2025 at 1.2% and 2026 at 1.1%. In general, this run of below-potential growth is consistent with (if not a touch softer than) our near-term outlook.

Inflation remains somewhat stubborn, but the view that underlying trends are around 2.5% (and not clearly deteriorating) offered the flexibility to ease. The Bank sees headline inflation at 2.0% in Q4 and the core inflation (median/trim average) at 2.9%. Core inflation settles to 2.3% y/y by 2026Q4.

The Bottom Line: That’s likely it, for now, for Bank of Canada easing. The Bank appears to believe that the easing to date will offer support; inflation is steadily on its way back to 2%; and the usefulness of monetary policy is somewhat limited in this unique economic environment. That said, we believe that ongoing softness in the job market leaves the door open for some further support, and another 25 bp rate is still on the table for early-2026.