March 12th, 2025: The Bank of Canada has lowered its overnight rate by 25 basis points to 2.75%, marking its seventh consecutive rate cut. While this move was anticipated, it comes amid ongoing economic uncertainty and the potential fallout from U.S. trade tensions. The central bank has signaled that further adjustments may be necessary, but the path forward remains uncertain.

Why Was the Rate Cut Necessary?

Despite stronger-than-expected economic performance in early 2025, concerns over trade-related uncertainty pushed the Bank of Canada to take action. The risks associated with new U.S. tariffs and their impact on Canadian businesses have prompted policymakers to prioritize economic stability.

Economists note that the rate cut serves as a precautionary measure to support economic growth. While the Bank of Canada acknowledged both upside and downside risks, the greater concern over slowing growth ultimately justified the decision to lower rates.

Will More Rate Cuts Follow?

There is division among experts regarding the likelihood of additional rate cuts. Some believe the central bank may pause at its next meeting to assess economic developments, while others predict further reductions in the coming months.

• TD Economics anticipates two more cuts by June, bringing the overnight rate to 2.25%. However, they caution that going lower could create inflationary challenges.
• Oxford Economics agrees that additional rate cuts are possible but suggests the Bank of Canada is unlikely to drop below 2.25% unless trade tensions escalate further.
• RBC Economics highlights the significant uncertainty surrounding future policy decisions, noting that the Bank of Canada removed explicit forward guidance from its statement.
• Other analysts, such as those from CIBC, forecast two more 25-bps cuts in April and June, bringing the rate to 2.25%—a level some believe may be the floor for this rate cycle.

How This Impacts Mortgage Holders and Homebuyers

For those with variable-rate mortgages or Home Equity Lines of Credit (HELOCs), this rate cut means lower interest costs and potentially reduced monthly payments. First-time homebuyers may also benefit as borrowing costs become more affordable. However, uncertainty in the broader economy and the ongoing trade war could influence future rate decisions, affecting long-term affordability.

Looking Ahead

The Bank of Canada’s next steps will depend on how the economy responds to current monetary policy and whether trade-related risks intensify. While lower rates can provide relief to borrowers, the central bank must also weigh the impact on inflation and overall economic stability.

For homeowners and prospective buyers, staying informed about rate trends and working with mortgage professionals can help navigate these shifts effectively. As the economic landscape continues to evolve, those considering mortgage renewals or new home purchases should evaluate how these changes may influence their financial decisions.

Courtesy of Darcy Doyle The Mortgage Professionals