Monday Market Minute | Oct 06, 2025
Bank of Canada cuts to 2.25% in October, approaching the neutral rate range and raising questions about how much further easing is warranted.
What Moved
The Bank of Canada cut 25bps in October, bringing the overnight rate to 2.25% — near the lower bound of the BoC's estimated neutral rate range of 2.25-3.25%. Macklem's statement acknowledged that the rate was approaching the level where further cuts would represent genuinely stimulative policy rather than simply removing restriction. The Monetary Policy Report revised its neutral rate estimate, reflecting the structural changes wrought by tariffs and the productivity slowdown. Markets debated whether the BoC had one more cut remaining or was effectively done for the cycle.
Why It Matters
The approach to neutral was a pivotal moment for private markets. The rapid cutting phase — which had compressed private credit spreads and supported real estate valuations — was entering its final stage. Private credit managers began preparing for a stabilized rate environment, where absolute yields would settle in the 8-10% range rather than continuing to decline. For PE sponsors, the near-neutral rate provided a stable financing baseline for modeling deal returns. The uncertainty shifted from "how far will rates fall" to "how long will rates stay here."
Signal to Watch
The BoC's December decision would determine the terminal rate for this easing cycle and set the baseline for 2026 private market return expectations.