Bank of Canada Cuts Rates, Maybe for The Last Time, Says TD

11:38 AM EDT, 10/29/2025 (MT Newswires) -- The Bank of Canada (BoC) cut its policy rate by 25 bps to 2.25% on Wednesday, in line with market expectations, said TD.

The decision was accompanied by an updated forecast, the first since January, as "the effects of US trade actions on economic growth and inflation" are "somewhat clearer."

The BoC now expects the economy will grow by 1.2% this year, 1.1% in 2026 and 1.6% in 2027. These figures are very similar to the bank's forecast.

The BoC expects that inflation will moderate in the coming months and that consumer price index inflation will "remain near 2% over the projection horizon." Notably, the emphasis on underlying inflation remains and that it is holding "around 2.5%."

Looking forward, should the Canadian economy and inflation evolve as expected, "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".

Of course, Canada's central bank leaves room to respond should circumstances change, stated TD.

The outlook shows a gradual uptake of excess capacity and inflation stabilizing, a scenario that would suggest no more easing is required, pointed out TD. However, despite the effects of the trade shock being better understood, the outlook is replete with uncertainty -- not least because CUSMA negotiations are set to ramp up next year.

Stabilization at 2.25% is the bank's base case on where the policy rate will hold, but TD acknowledges that risks abound.

The BoC is now at the bottom end of its estimated neutral range, and a pause is "reasonable," added the bank. While trade represents a downside risk to the outlook, the upcoming federal budget could well represent the upside risk.

Prime Minister Mark Carney is expected to chart out a vision for the economy to offset some of the structural changes the BoC is unable to address. The structure and timing of potential outlays could materially affect the medium-term outlook for the economy and the BoC's decision-making, according to TD.

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