The Bank of Canada (BoC) has announced its seventh consecutive rate cut, lowering the overnight lending rate from 3.00% to 2.75%. This move brings the retail prime rate—the rate consumers pay—down from 5.20% to 4.95%.
For variable-rate mortgage holders, this means lower payments. Specifically, for every $100,000 of mortgage principal, payments will decrease by approximately $15 per month. If you have a fixed-payment variable mortgage, this reduction goes toward the principal, shortening your amortization period.
But beyond the immediate impact on mortgage rates, this rate cut carries broader economic implications. Let’s take a deep dive into why the BoC made this move and what it could mean for the future.
BoC Cuts Rates Amid Trade War Turmoil
The last few weeks have been a rollercoaster for the Canadian economy, with uncertainty at the forefront. The primary focus leading up to today’s announcement was whether the BoC would cut rates in response to mounting economic pressures—particularly as Canada faces escalating tariffs from its largest trading partner, the United States.
At 9:45 AM, the BoC provided its answer: a 25 basis point (bps) rate cut.
In its statement, the BoC acknowledged that while monetary policy can’t directly offset the effects of a trade war, it must ensure that inflation remains stable. The bank emphasized that it will closely monitor both downward pressures on inflation due to a weaker economy and upward pressures resulting from higher costs.
👉 Click here to read the full Bank of Canada press release.
Market Expectations vs. Reality
Interestingly, just three weeks ago, market odds suggested only a 23% chance of a rate cut at this meeting. Many expected the BoC to hold steady, given that key economic indicators had remained strong:
- The unemployment rate unexpectedly declined.
- Inflation ticked higher in January.
- GDP growth for Q4 2024 exceeded expectations.
However, the trade war threw a wrench into those forecasts, forcing the BoC to shift gears.
The Tariff Trump Card
The aggressive trade policies from the U.S. have disrupted economic projections and policy responses. Last month, BoC Governor Tiff Macklem highlighted the gravity of the situation:
“In the pandemic, we had a steep recession followed by a rapid recovery as the economy reopened. This time, if tariffs are long-lasting and broad-based, there won’t be a bounce-back. We may eventually regain our current rate of growth, but the level of output will be permanently lower. It’s more than a shock—it’s a structural change.”
In other words, unlike past economic shocks, a prolonged trade war could have long-lasting negative effects, requiring sustained policy adjustments.
The BoC has committed to supporting Canadians with lower interest rates, but there’s only so much that monetary policy can do in the face of structural economic changes.
What’s Next for Interest Rates?
With the BoC now in full rate-cutting mode, both variable and fixed mortgage rates are expected to decline quickly.
CIBC economist Benjamin Tal has suggested that if the trade war drags on, the BoC may have no choice but to cut rates below 2.00% again.
However, the full extent of future cuts depends on how severe the economic disruption becomes.
Just Look at Yesterday…
To illustrate the unpredictability of the situation, let’s recap what happened in just one day:
🚨 Ford: “We’re turning off the power.”
🚨 Trump: “The retaliation will be so big it will be read about in HISTORY BOOKS.”
🚨 By 5 PM: “We’re having a constructive conversation.”
You can’t make this stuff up. Calling it childish would be an insult to children.
A View from 10,000 Feet
Almost exactly five years ago, we experienced our first pandemic lockdown. Looking at today’s economic climate, I’m getting a strong sense of déjà vu.
Back in March 2020, no one could have predicted that the following 18 months would be one of the most prosperous periods in Canadian real estate history. Of course, that boom was fueled by a perfect storm of historically low interest rates and massive government stimulus, which drove prices through the roof.
Will We See Another Real Estate Boom?
I don’t believe we’ll see a 2021-style explosion in the housing market. However, the fundamental ingredients for a real estate surge are starting to come together again:
✅ Low Interest Rates: Borrowing costs are dropping, making mortgages more affordable.
✅ Increased Government Spending: Economic stimulus could boost consumer confidence.
✅ Post-Shock Rebound: After an initial economic hit, confidence may recover quickly.
If history is any guide, these conditions could fuel another wave of real estate price increases. But there’s a critical caveat: Inflation.
If rates stay low and stimulus spending ramps up, we may see a resurgence of inflation in 2 to 3 years. This could eventually force the BoC to reverse course and start hiking rates again.
Looking Ahead: April 16 and Beyond
The BoC’s next rate decision is scheduled for April 16. Between now and then, we’ll be watching closely for developments on the tariff front and economic indicators that could shape the BoC’s next move.
For now, the key takeaway is clear: Interest rates are falling, and that’s good news for borrowers.
If you have a variable-rate mortgage or are considering buying a home, now is the time to take stock of your options.
Have questions? Feel free to reach out—I’m happy to help you navigate these changing times.
