Central bank chief indicates further easing is unlikely without a major economic shift
The Bank of Canada trimmed its key overnight rate to 2.25% on Wednesday, marking its second consecutive cut and the lowest level since July 2022. But governor Tiff Macklem made clear at a press conference that further rate reductions are unlikely unless the economic outlook shifts dramatically.
“The weakness we’re seeing in the Canadian economy is more than a cyclical downturn. It is also a structural transition,” Macklem said, referencing the fallout from United States tariffs and a broader move toward protectionism south of the border.
He emphasized the limits of monetary policy in the current environment. “Monetary policy can’t target specific sectors like aluminum, steel and autos, and it can’t help companies find new markets,” he said.
The Bank of Canada’s governing council signalled that the current policy rate is “about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.” Macklem added, “If the outlook changes, we are prepared to respond.
"What it can do is it can try to mitigate the spillovers from the hard-hit sectors to the rest of the economy, and it can try and help the economy adjust to this structural change.”
The central bank’s latest projections reflect this new reality. Growth for 2025 is now forecast at just 1.2%, down from 1.8% in January, and 1.1% in 2026, before a modest recovery to 1.6% in 2027.
“With tariffs now in place and US protectionism entrenched, the impact on Canada has become clearer, even as the level and scope of future tariffs remains uncertain,” Macklem said.
The Bank of Canada has lowered its benchmark interest rate, cutting by 25 basis points amid continuing signs of a softening national economy.https://t.co/htFxvhGgur
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 29, 2025
Economists have interpreted the bank’s tone as a clear signal that the easing cycle may be over for now. CIBC’s Andrew Grantham said the BoC “appears to be moving back onto the sidelines to consider incoming data, the impact of next week’s federal budget and the progression of trade discussions.”
The bank’s forecast for inflation remains anchored at 2%, with consumer prices expected to average around 2.1% in 2026.
Despite the headwinds, Macklem stressed that the bank is not forecasting a sharp downturn. “Whether it’s Q3, Q4, small positives, small negatives, they’re not going to feel very good,” he said. “This is pretty modest growth, even in our forecast.”
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