The Bank of Canada lowered its target overnight rate by a quarter percentage point to 2.25% in a move commercial property professionals expect to boost activity in the market.
The rate cut, the second by the central bank in less than two months, reflects ongoing economic weakness and an inflation rate expected to remain close to the 2% target. In mid-September, the Bank of Canada also lowered its benchmark lending rate by 25 basis points.
"The Canadian economy faces a difficult transition," the bank said in announcing its decision Wednesday. It cited structural damage from an ongoing trade conflict with the United States that “reduces the capacity of the economy and adds costs,” limiting the role monetary policy can play in boosting demand.
The bank's Governing Council said “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.”
Commercial real estate leaders welcomed the central bank's decision.
“The Bank of Canada’s move to cut the overnight rate is the good news we need right now,” said Mark Fieder, President of Avison Young Canada, in a statement emailed to CoStar News. “Lower interest rates will further stimulate our market, generating appetite from those investors who have been cautiously holding off on the sidelines while fueling already-active investors with even more optimism.”
Fieder added that some economic indicators are coming in better than expected, such as last week’s inflation report, but he cautioned that unpredictability remains.
Residential brokers echoed that positive sentiment.
“With the Bank of Canada cutting its key interest rate to 2.25%, the second consecutive reduction, we could see a much-needed boost in consumer confidence across Canada’s housing market,” said Don Kottick, president of Re/Max Canada, in an emailed statement. “While inflation remains a concern, today’s decision signals cautious optimism and may encourage more buyers to re-enter the market after months of hesitation.
On Wednesday, the U.S. Federal Reserve also cuts its benchmark lending rate by a quarter percentage point, to 3.75% to 4%, its lowest target range in nearly three years.
Supporting growth a priority
Marc Lefrancois, real estate broker with Royal LePage Tendance said the rate cut reflects the central bank's commitment to spurring activity.
“In September, Canada’s Consumer Price Index rose 2.4% year over year, up from 1.9% in August. Despite this uptick, the Bank of Canada proceeded with another rate cut today, signaling its priority to support growth amid signs of economic softness,” Lefrancois said in an emailed statement. “For the real estate sector, lower borrowing costs could put even more pressure on a market that is already struggling to keep up with strong demand.”
Bank of Canada noted that while “underlying inflation remains around 2½%,” its expects pressures to ease in the months ahead.
Some analysts said the central bank might tolerate inflation closer to 3% rather than pushing to get it to the traditional 2% target, given the risks to growth. Business conditions, rising unemployment, and upcoming mortgage renewals are putting pressure on households and could justify a more flexible approach to inflation targets, CoStar Canada Chief Economist Carl Gomez said in a report this week.
The housing market remains under pressure. While lower interest rates might result in lower mortgage rates that help homebuyers, builders continue to grappled with high costs and tighter lending conditions.
The rate cut also comes amid escalating trade tensions. Just days earlier, U.S. President Donald Trump announced new tariffs on Canadian steel, cars, and lumber, further straining Canada’s export sector. The Bank of Canada's report emphasized that “trade relationships are being reconfigured and ongoing trade tensions are dampening investment in many countries.”
Canada’s economy contracted by 1.6% in the second quarter, driven by a drop in exports and weak business investment amid heightened uncertainty. While household spending grew at a healthy pace, the Bank of Canada warned that trade actions by the United States "and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber.” Gross domestic product, or GDP, growth is expected to remain weak through the second half of the year before gradually recovering.
The Bank said it projects GDP growth of 1.2% in 2025, 1.1% in 2026, and 1.6% in 2027. Meanwhile, workforce market conditions remain soft, with the unemployment rate holding at 7.1% in September and wage growth slowing. Employment gains in September followed two months of sizeable losses, and hiring remains weak across trade-sensitive sectors.