Mortgages

By Penelope Graham on January 29, 2025
Estimated reading time: 9 minutes

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Ratehub.ca

By Penelope Graham on January 29, 2025
Estimated reading time: 9 minutes

How the BoC’s sixth consecutive rate cut will impact Canadians, and what to know whether you’re a borrower, investor or saver.

The Bank of Canada (BoC) chopped its trend-setting interest rate once again, lowering it by a quarter of a percentage point to an even 3%. This marks the sixth decrease in a row from the central bank, which kicked off its cutting cycle last June; since then, the benchmark rate has dropped by a total of 200 basis points from its peak of 5%, where it had been held since July 2023.

This has considerably eased borrowing costs for Canadians, especially mortgage rate shoppers. However, it’s uncertain how much more interest relief is on the way, as threatened 25% U.S. import tariffs—which could take effect on February 1st—have skewed the rate and economic outlook for Canada.

In its announcement accompanying the rate cut, the BoC’s Governing Council writes that its current outlook is “subject to more-than-usual uncertainty.” It added that should tariffs on Canadian goods in the U.S. be implemented, the “resilience of Canada’s economy would be tested.”

However, the BoC can’t dictate rate policy based on hypotheticals. It works with the current hard data available. Based on recently released statistics, including jobs numbers and December 2024 inflation (1.8%), the central bank states that today’s quarter-point cut was warranted.

Assuming trade tariffs don’t materialize, Canadians can now expect the cadence and size of rate cuts to slow this year. The central bank says its previously-implemented cuts are working, and that less stimulus is needed moving forward. Based on a no-tariff scenario, economists are largely calling for the BoC’s rate to fall to a range between 2.5% to 2.75% by the second half of 2025. And that will likely be carried out in two to three more rate cuts.

Unfortunately, it seems most likely that tariffs, at least in some form, will indeed be implemented in the near future. President Donald Trump gave a Feb. 1, 2025 date once he came into office. To provide some guidance as to how these may affect the economy, the BoC included a theoretical analysis in its January Monetary Policy Report, which was released this morning alongside the rate announcement.

“Given the uncertainty around future global tariff policies at this time, the Bank has chosen a simple scenario to illustrate how the global and Canadian economies could be affected by a trade conflict,” it reads.

The scenario assumes:

Should this play out, the BoC expects the average annual gross domestic product (GDP) growth to be 2.5 percentage points lower during the first year of tariffs, compared to a non-tariff scenario, and 1.5 percentage points lower in the second year, before normalizing in........

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