The Bank of Canada just released its first interest rate announcement of 2025, and rates continue to trend downward.
The central bank has announced it is cutting its overnight lending rate by 25 basis points, bringing it down to 3.0%. This marks yet another cut in a series that started in June, and it's another step in its ongoing effort to manage inflation and stimulate economic growth.
According to the Bank of Canada, the decision to lower rates is tied to inflation staying close to the 2% target and the economy having some excess supply. In simpler terms, things have cooled off just enough for the central bank to feel comfortable making borrowing a little cheaper.
Plus, the central bank says it's officially ending its quantitative tightening efforts, meaning it will start buying assets again in March to keep its balance sheet in check.
The BoC says previous rate cuts are already boosting the economy, with spending and housing activity on the rise. However, business investment is still lagging, and job growth — while improving — hasn't fully caught up to the growing labour force. The unemployment rate sat at 6.7% in December, and while wage pressures are easing, they haven't disappeared.
So, what does this all mean for the average Canadian?
Well, if you've got a variable-rate mortgage, you might see some relief on your monthly payments. Lower interest rates can also mean cheaper loans for things like buying a car or starting a business.
But for savers, this could mean lower returns on things like high-interest savings accounts. It's a classic trade-off — good news for borrowers, not so great for those hoping to grow their savings.
"This latest decrease arrives just before the spring housing market — when demand typically picks up — which should spur buying and selling activity in the weeks ahead," said Phil Soper, president and CEO of Royal LePage, in a statement to Narcity. "However, the looming promise of hefty tariffs by the United States government is a source of uncertainty for the central bank and consumers alike."
Indeed, the broader economic picture remains uncertain, especially with the threat of trade tariffs from the U.S. kicking in as soon as Saturday, which could shake up Canada's economy in a major way. The Bank acknowledges that it's impossible to predict how that situation will play out, but for now, its forecasts assume no new tariffs.
It expects GDP growth to pick up slightly in 2025, reaching 1.8%, but warns that with slower population growth due to lower immigration targets, things won't be quite as strong as previously expected.
"We believe the Bank of Canada's focus will be a decided shift from an inflation battle to avoiding an economic downturn," Soper said. "A recession resulting from a tariff tit-for-tat could prompt additional cuts in the short-term to stimulate the economy."
Inflation, which has been the big concern for the last couple of years, is mostly under control at around 2%, the central bank says, though shelter prices remain high. The Bank of Canada notes that while these costs are still elevated, they are gradually easing, which should provide some relief for homeowners and renters alike.
As always, the BoC will be keeping a close watch on how things unfold. While this latest rate cut is meant to keep the economy on track, officials warned that any major tariffs from the U.S. could throw a wrench into things.
The next interest rate announcement is set for March 12, so Canadians won't have to wait too long to see what happens next. For now, this latest move signals a shift toward easier borrowing conditions, offering some financial breathing room for Canadians.
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