The Bank of Canada cut its policy rate 25 basis points to 2.25 per cent and all but said the cutting is done for now. That gives variable borrowers a small break, but it leaves exporters and factory towns taking the real hit from U.S. tariffs. The bank’s line is clear, keep inflation near 2 per cent, do not chase growth that Washington just took away. That puts households on a slow leak, not a rescue.
The real move is a credibility hold. The bank says the current rate is “about the right level” if the outlook holds. That is a public pause. Markets got the message, the dollar firmed and traders pushed out any chance of more cuts until next year. The bank saves face on inflation, lenders keep pricing power, and borrowers get crumbs.
Tariffs, Not The Bank, Are In Charge
This slowdown is made in the U.S., not on Wellington Street. The bank’s own report calls the damage “structural” and says tariffs pushed Canada onto a lower path. Exports fell and business investment retreated, while inflation sits near 2 per cent with core around the mid twos to three. That is a bind, because the shock is trade policy, not credit. Rate cuts cannot fix this.
So what Canadians keep getting hit? Trade‑exposed sectors do first, with jobs in autos, steel, aluminum, and lumber on the line, then households through slower wage growth. The bank says the economy shrank 1.6 per cent in the second quarter and joblessness is 7.1 per cent. That will sting at bargaining, and limit the actions they can further take.
Governor Tiff Macklem matters here, and he left the door cracked but not open. He said the bank is “prepared to respond” if the outlook changes. Translation, the bar for more cuts is high, and time is on the bank’s side.
Pricing Power Tilts Back To Lenders
With a pause signal, banks can ease prime by the standard notch, then hold spreads if funding costs jump or the dollar wobbles. That’s not cheap for stretched renewals. The dollar’s pop after the decision shows the tone turned a bit hawkish, which also tightens financial conditions at the margin. Because guidance just firmed up, lenders price stability before generosity next.
The next rate call lands on December 10, 2025. The bank can hold or trim, but its own text says cuts are likely done unless the outlook breaks. Washington still holds the biggest lever, since tariffs set the ceiling on Canada’s growth while keeping some costs up. Ottawa can cushion with targeted spending or tax changes, but the bank’s tool is the rate and it just chose restraint. With the U.S. writing the trade rules, the central bank is driving, but the road now runs through Washington.
