The Bank of Canada just announced a 25 bps rate cut, bringing the policy rate to 2.75%. This means:
✅ Prime Rate Drop – Canada’s prime rate (currently 5.20%) is expected to drop to 4.95%, reducing borrowing costs for variable-rate mortgages, adjustable-rate mortgages (ARMs), HELOCs, and other loans.
✅ Variable-rate mortgage holders will see lower interest costs, meaning more of their payment goes toward paying down principal, but their payments will not automatically decrease unless the lender adjusts them.
✅ Adjustable-rate mortgage (ARM) holders will see an automatic drop in monthly payments, as their payments adjust directly with prime rate changes.
✅ Fixed mortgage rates may ease further if bond yields respond to this shift.
✅ HELOC rates will decrease, lowering interest costs for homeowners using these credit lines.
Today’s Move: Why the Bank Cut Rates Again
Canada entered 2025 with strong economic momentum—Q4 GDP grew 2.6%, and Q3 was revised up to 2.2%. Past rate cuts have clearly boosted activity, particularly in consumer spending and housing. But the tone has shifted. Heightened trade tensions and new US-imposed tariffs are expected to slow growth and increase inflation pressures in the months ahead.
📉 Consumer confidence has dropped, and businesses are scaling back or postponing investments.
📦 A rush of exports ahead of incoming tariffs gave Q4 a boost, but this is not expected to last.
💼 Employment had been strengthening through January, but February saw job growth stall. The unemployment rate stands at 6.6%.
🏠 Shelter costs remain a key driver of inflation, even as overall CPI was 1.9% in January.
The Bank expects inflation to rise to 2.5% in March as a temporary GST/HST suspension ends, but notes that core inflation measures remain elevated. With inflation close to target—but risks building on both sides—the Bank opted to lower rates again to support the economy, while acknowledging monetary policy can’t offset the impacts of a trade war.
Markets are now watching closely to see how this delicate balance between growth and inflation plays out.
📅 Next rate announcement: April 16, 2025
If you have questions about your mortgage or want to talk through how today’s rate cut could affect your plan, let’s connect. I'm happy to help you make sense of it all.
Best,
Matt Parker
778-897-2554