Executive Summary
The Bank of Canada (BoC) meets on October 29, 2025, and markets are speculating on whether the central bank will cut its policy rate. Most economists and financial instruments are pricing a 25 basis-point cut, but a hotter CPI print or stronger labour data could cause the BoC to hold.
Key Factors Influencing the Decision
- Inflation: CPI at 2.4% y/y in September 2025. Core inflation remains slightly elevated, influencing BoC’s decision.
- Labour Market: Employment growth is mixed. Signs of slack support easing; strong job gains could argue for a hold.
- Economic Growth: Slower growth and weak household finances suggest potential for rate cuts.
- Market Expectations: Swap rates indicate ~80% probability of a 25 bps cut.
Potential Outcomes
25 bps Cut to 2.25%
- Most likely scenario (~75% probability)
- Encourages borrowing, stimulates economy
- CAD may weaken slightly; variable-rate borrowers benefit
Hold at 2.50%
- Probability ~20%
- Signals caution; keeps optionality if inflation persists
- CAD may strengthen; markets adjust to slower easing expectations
Larger Cut >25 bps
- Low probability (~5%)
- Triggered by sharp deterioration in growth or labour market
- Boosts liquidity; short-term rates drop; CAD weakens further
Implications for Households and Markets
- Variable mortgage holders: Immediate benefit if banks pass on cuts
- Fixed-rate borrowers: Dependent on longer-term yields
- Equities: Rate-sensitive sectors may rally; financials react differently
- CAD & Bond Yields: Short-term yields drop with cuts; CAD reacts to surprise/dovish messaging
Key Items to Watch Before October 29
- New inflation updates and core CPI data
- Labour market surprises or reports
- Market swaps and futures pricing
- Speeches from BoC officials
- Global risk developments (commodities, trade)
Conclusion
Going into October 29, the **25 bps cut** scenario is most likely, but sticky inflation and labour market data could sway the decision. Stakeholders should monitor the announcement closely and prepare for market reactions.
