Bank of Canada Announces Interest Rate Cut
Bank of Canada announced its interest decision today, lowering the policy interest rate to 2.75%. This follows a series of seven consecutive rate reductions since June 2024, with the cumulative cuts now totalling significant relief from the 5% peak seen in mid-2023. In its press release, the Bank noted that the Canadian economy entered 2025 in a "solid position," but highlighted "heightened trade tensions and tariffs imposed by the US" as key factors likely to "slow the pace of economic activity and increase inflationary pressures." The decision was accompanied by a hawkish tone in forward guidance, suggesting a more measured approach to future cuts.
Economists' Expectations
Leading up to the announcement, economists widely anticipated this rate reduction. The consensus was driven by escalating trade tensions with the United States, particularly the imposition of tariffs on Canadian steel and aluminum. These trade disputes are expected to dampen economic growth and exert upward pressure on inflation. For instance, BMO economists projected that if U.S. tariffs were enacted, the BoC might be compelled to cut its policy rate to 1.50% by year-end.
Current Economic Outlook
The Canadian economy demonstrated some growth in late 2024, bolstered by previous interest rate cuts. However, the outlook is clouded by trade uncertainties. BoC Governor Tiff Macklem expressed concerns that the trade war could slow Canada's economic growth, increase inflation, and lead to higher unemployment.
Surveys indicate that trade-related uncertainties have negatively impacted consumer and business confidence, leading to subdued spending and investment. Despite these challenges, inflation remains near the BoC's 2% target but is projected to rise slightly in the short term.
Looking Ahead
The BoC's decision underscores its commitment to supporting the economy amid external shocks. However, the central bank also emphasized that monetary policy alone cannot counteract the broader effects of trade conflicts. Future rate decisions will hinge on evolving economic data, trade developments, and inflation trends. The Bank will continue to monitor these factors closely and adjust its policies as necessary to fulfill its mandate of price stability and sustainable economic growth.
What this means for Mortgage rates
For borrowers and potential home buyers, this is great news, with the Prime Lending rate moving down from 5.20% to 4.95%. This obviously means that rates across the board will likely see a drop, with us seeing sub-4% rates on some terms, for the first time in almost 3 years. With about 60% of mortgages renewing by the end of 2026, this downward trend is a significant sigh of relief, as increase borrowing costs have significantly impacted Canadians' pocket book.
Current Rates For Purchase as low as:
5 Year Fixed: 3.99%
5 Year Variable: Prime - 0.91%
3 Year Fixed: 3.87%
3 Year Variable: Prime - 0.80%
** Terms and Conditions Apply**
Current Rates For Refinance as low as:
5 Year Fixed: 4.45%
5 Year Variable: Prime - 0.75%
3 Year Fixed: 5.05%
3 Year Variable: Prime - 0.15%
** Terms and Conditions Apply**
Looking to purchase, renew or refinance? Speak to one of our Mortgage Professionals to discuss your options and answer whatever questions you may have!