Weak jobs data is hardening expectations around a rate reduction on September 17
The Bank of Canada is likely to cut its benchmark rate by 25 basis points next week as economic pressures mount and global central bank policy shifts, according to a mortgage expert.
Penelope Graham of Ratehub.ca, said the central bank now has “a compelling reason to deliver a 25-point cut next week,” as softer jobs data and ongoing tariff impacts weigh on the economy.
The Canadian economy shed 66,000 jobs last month, following a 41,000 drop in July, as the national unemployment rate climbed by 7.1%. That marks the highest jobless rate outside the pandemic for nearly a decade.
Manufacturing lost 58,100 jobs over the past seven months as a result of the trade war. In August, 26,000 jobs were cut from professional, scientific, and technical services. Ontario, British Columbia, and Alberta faced the biggest job losses, while Quebec’s employment stayed stable.
“Evidence is mounting that tariffs are whittling economic strength, and that some stimulus will be needed in the short term. The growing likelihood of a similar cut from the US Federal Reserve also provides the BoC breathing room to lower rates without pressuring the Loonie.”
Inflation data could seal the deal
The Bank of Canada’s decision, scheduled for September 17, will also hinge on the latest inflation numbers, due just one day earlier. “The BoC also has the next set of inflation data to mull over, due the day before its announcement. Should there be further progress in the headline number – and any softening among the core metrics – that will further seal the deal for a cut,” Graham said.
Canada’s overall inflation is still under the Bank of Canada’s 2% target, but the core rate is slightly higher. While the door remains open for at least one more cut in 2025 if economic weakness persists, Graham cautioned that “given core inflation metrics remain elevated, the Bank won’t be keen to pass along too much stimulus too soon.”
Market impact and borrower strategies
The anticipation of a rate cut has already pushed down bond yields and mortgage rates. “The growing pressure on the US Federal Reserve to cut rates has caused bond yields to drop, including north of the border; the Government of Canada five-year yield is now in the 2.7% range for the first time since May. This has put downward pressure on fixed mortgage rates, with the lowest five-year term in Canada back below the 4% threshold,” Graham said.
She recommended that borrowers act quickly to secure a rate hold or pre-approval. Locking in now protects their rate options, since lenders may soon reduce discounts on variable rates, limiting potential savings. A rate hold also ensures access to the lowest fixed mortgage rates for a longer period.
For those choosing between fixed and variable rates, Graham noted the spread is now just four basis points. “Variable rates may offer greater savings this year, but there are still economic headwinds that could push inflation higher, which would prompt the BoC to reverse course,” she said.
Affordability outlook improves
With mortgage rates easing and home prices stagnant, buyers are seeing improved affordability. “The combination of lower mortgage rates and soft buying market means real estate buyers are enjoying some of the best affordability conditions in some time; home prices continue to stagnate, and the market is well supplied with inventory. Further rate cuts could spark an uptick in sales activity – and competition – in the coming months,” Graham said.
According to Ratehub.ca’s calculator, a homeowner with a 10% down payment on a $672,784 home and a 5-year variable rate of 3.95% would see their monthly payment drop by $84 if the Bank of Canada implements a 25-basis point cut, equivalent to a savings of $1,008 per year.
