Canada’s Cooling Economy Sets the Stage for Possible 2025 Rate Cuts
TORONTO — 23 June 2025.
The Bank of Canada (BoC) kept its overnight lending rate anchored at 2.75 % earlier this month but, for the first time since its tightening cycle ended last year, signalled that a cut is “on the table” if growth continues to soften.
Why the Pause Feels Like a Pivot
Sluggish Retail Spending: April sales crept up just 0.3 %, but a flash estimate from Statistics Canada points to a 1.1 % drop in May, hinting that households are tapping the brakes.
Inflation Eases: Headline CPI cooled to 1.7 % y/y in April, thanks largely to a double-digit plunge in gasoline prices. Core measures remain nearer 3 %, but the downtrend strengthens the BoC’s hand.
Global Headwinds: The OECD’s June Outlook trims its 2025 growth call for Canada to 1.6 %, citing trade frictions and tighter financial conditions.
“Enough slack has accumulated that we expect two 25-bp cuts by year-end, bringing the policy rate down to 2.25 %,” says Andrew Hencic, senior economist at TD Economics.
Market Reaction
| Indicator | 3 June 2025 | 21 June 2025 | Direction |
|---|
| CAD / USD | 1.3620 | 1.3730 | ↓ Canadian $ weakens |
| 10-yr GoC yield | 3.38 % | 3.32 % | ↓ 6 bp |
| WTI crude | $79.10 | $74.95 | ↓ $4.15 |
What to Watch Next
| Date | Data/Event | Why It Matters |
|---|
| 24 June | May CPI release | Confirms whether inflation’s glide lower is sticky |
| 17 July | BoC Monetary Policy Report | Updated growth & inflation forecasts |
| Late July | Fed decision | A dovish Fed could widen Canada-U.S. rate differentials |
Bottom Line
Canada’s economy is losing altitude just as inflation finally cools. If May’s CPI print comes in below 2 %, economists say the BoC could begin trimming rates as early as September. Businesses and homeowners alike should start pencilling in lower financing costs—but also brace for a softer labour market as growth decelerates.
Stay tuned: we’ll break down the CPI numbers and what they mean for borrowers the moment they drop.
