On March 12th, the Bank of Canada announced that it had lowered the target for the overnight lending rate by 25 basis points to 2.75%. This marks the seventh consecutive decrease to rates since June 2024.
In its announcement, the Bank acknowledged that the Canadian economy had started the year on good footing. Now, with a trade war underway with the United States, the country is expected to see slower economic activity and increasing inflationary pressures in the months ahead, justifying the central bank’s decision to reduce its policy rate yet again.
“[In recent] months, the pervasive uncertainty created by continuously changing US tariff threats has shaken business and consumer confidence. This is restraining household spending intentions and businesses’ plans to hire and invest. Against this backdrop, and with inflation near the 2% target, [the] Governing Council decided to reduce the policy rate a further 25 basis points,” said Tiff Macklem, Governor of the Bank of Canada, in a press conference with reporters following the announcement.
“Looking ahead, the trade conflict with the United States can be expected to weigh on economic activity, while also increasing prices and inflation. Governing Council will proceed carefully with any further changes to our policy rate given the need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.”
In January, Canada’s Consumer Price Index (CPI) rose 1.9% on a year-over-year basis, a slight increase from 1.8% in December. Higher gasoline and energy prices contributed to the modest uptick to the inflation rate, which remains under the Bank’s 2% inflation target. Inflation is expected to increase to 2.5% in March as relief from the GST/HST tax break subsides.
Lower borrowing rates to boost buying power this spring
Trade disputes with the United States are likely to dampen activity within the housing market as economic uncertainty causes consumers to pull back. However, those already in the market and motivated to buy a home, or those expecting to renew their mortgage this spring, may find a silver lining – lower borrowing costs.
“For the seventh consecutive time, the Bank of Canada has dropped its overnight lending rate. In an increasingly turbulent economic environment, this series of rate decreases presents an opening to aspiring homebuyers and those approaching their mortgage renewal,” said Phil Soper, president and CEO of Royal LePage. “While ongoing trade tensions will sow hesitancy in the minds of some consumers, purchasers who are motivated to transact this spring are well-positioned to use their enhanced borrowing power to their advantage, in a market with more inventory to choose from.
“With substantial tariffs from the United States set to come into effect, Canada’s central bank will likely focus its attention on stimulating the economy and steering us away from a recession. Additional rate cuts may be on the horizon as policymakers work to maintain stability. The housing market, while it may see a temporary slowdown in activity, remains largely insulated from trade disputes, ensuring its resilience in the long term.”
According to a recent Royal LePage survey, conducted by Hill & Knowlton,1 more than half (57%) of Canadians who are renewing the mortgage on their primary residence in 2025 expect their monthly mortgage payment to increase upon renewal (35% expect it to increase slightly and 22% expect it to increase significantly). Meanwhile, 25% say their monthly mortgage payment will remain about the same – within $100 of their current payment amount – and another 15% expect their monthly payment to decrease upon renewal.
The Bank of Canada will make its next interest rate announcement on Wednesday, April 16th.
Read the full March 12th report here.
1Hill & Knowlton used the Leger Opinion online panel to survey 1,340 Canadians renewing their mortgage in 2025, aged 18+. The survey was completed between January 24th and February 5th 2025. See methodology for more information.
