The Bank of Canada is widely expected to cut its key interest rate by 0.25% on Wednesday, October 29. If it happens, the overnight rate drops from 2.5% to 2.25%.

It's not exactly a surprise. Canada's economy has been cooling alongside the autumn weather, and the latest numbers tell a story that's hard to ignore.

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Retail Sales Signal Economic Weakness

StatCan's early numbers show retail sales dropped 0.7% in September. When you factor in rising prices, the actual volume of stuff people bought looks even weaker.

"Despite a decent August report, the disappointing September flash highlights the underlying weakness in Canadian retail spending," Shelly Kaushik, senior economist at Bank of Montreal, told Canadian Mortgage Professional. She pointed to ongoing trade uncertainty keeping the Bank of Canada in cut mode, adding, "We continue to believe that the bank isn't done easing just yet."

Andrew Grantham from CIBC Capital Markets noted that retail volumes haven't budged much since December. Weak consumer confidence, US tariff uncertainty, and a softer job market all point toward lower rates making sense.

And it's not just September. Bradley Saunders at Capital Economics told CMP that August's rebound won't save the third quarter from a sharp slowdown in consumer spending.

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Business Sentiment Stays Low

The Bank of Canada's latest business survey isn't encouraging. Firms don't expect to hire next year. Exports are getting squeezed by trade uncertainty. It's the kind of data that makes rate cuts look necessary rather than optional.

Even Prime Minister Carney's recent pre-budget comments about Canadians needing to "make sacrifices" add weight to expectations of further easing.

Penelope Graham from Ratehub.ca put it plainly: "Evidence of a sputtering economy will likely compel the Bank of Canada to cut its benchmark rate a second consecutive time next week."

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What Happens After October?

A cut on Wednesday seems likely. What comes after is less certain.

Graham doesn't rule out more cuts before year-end. If the Bank holds off in October to keep flexibility, a December cut becomes more probable. But 2026? That's murkier. Trade negotiations, especially around CUSMA, could create inflation pressures that push rates back up in the latter half of next year.

It's not the most comforting outlook, but it's honest.

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Fixed Rates Are Already Moving

Bond yields, which drive fixed mortgage rates, have been sliding. The Canadian government's five-year yield is hovering around 2.5%, while the US 10-year treasury sits below 4%. Lenders are responding.

The lowest five-year fixed insured rate is now at 3.79%, according to Graham. That's only nine basis points higher than the lowest variable rate option. The gap between fixed and variable has narrowed significantly.

If you're shopping for a mortgage, getting a pre-approval now locks in current rate discounts and the spread to prime. Rates could drop further, but they could also shift if economic conditions change.

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Variable Rate Mortgages Will Drop

A 0.25% rate cut flows directly to variable mortgage holders. Graham ran the numbers using an Alberta example:

Say you put 10% down on a $499,278 home with a five-year variable rate of 3.79%, amortized over 25 years. Your mortgage is $463,280, and your monthly payment is $2,384.

After a 25-basis-point cut, your rate drops to 3.54%. Your monthly payment becomes $2,323. That's $61 less per month, or about $730 annually.

It's not life-changing money for most people, but it helps. And if there are more cuts ahead, those savings add up.

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Housing Market Activity Could Pick Up

Lower rates tend to bring buyers back. Many potential buyers have been waiting on the sidelines for affordability to improve. Cheaper borrowing costs could unlock pent-up demand.

Graham noted that buyer confidence seems to be returning. If mortgage costs align better with budgets, expect more activity.

But here's the thing: lower rates alone won't fix everything. Housing supply, prices, and broader economic conditions all matter. Rates are one piece of a complicated puzzle.

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The Bigger Picture

This isn't just about mortgages. Rate cuts reflect where the economy is right now. Sluggish retail spending, cautious businesses, trade uncertainty. The Bank of Canada is responding to real economic weakness, not just trying to goose the housing market.

For homeowners and buyers, cheaper borrowing helps. For the economy overall, rate cuts are a tool to encourage spending and investment when things slow down.

Wednesday's decision will tell us whether the Bank thinks the economy needs more support. Most experts believe it does. We'll know soon enough.