What Changed Today
The Bank of Canada today reduced its target for the overnight rate to 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. That's another quarter of a percent down.
Canada's economy started 2025 in decent shape — inflation close to the 2% target, solid GDP growth. But trade tensions and new U.S. tariffs are expected to slow things down and push some prices higher. The Bank says the outlook is more uncertain than usual because policy south of the border keeps changing.
The Global Picture
After strong growth, the U.S. economy looks like it's cooling. Inflation there is still a bit above target. Europe's growth was modest in late 2024. China posted strong gains, helped by government support.
Equity prices have fallen and bond yields have eased on expectations of weaker North American growth. Oil prices have been volatile and are trading below what the Bank assumed in its January Monetary Policy Report. The Canadian dollar is roughly flat against the U.S. dollar but weaker against other currencies.
Canada's Fourth Quarter and What's Ahead
Canada's economy grew 2.6% in the fourth quarter of 2024, following an upwardly revised 2.2% in the third. That's stronger than the Bank expected in January. Past rate cuts have boosted spending and housing.
But growth in the first quarter of 2025 will likely slow as the trade conflict weighs on sentiment and activity. Recent surveys show a sharp drop in consumer confidence and a slowdown in business spending — companies are postponing or cancelling investments. The negative impact of slowing domestic demand has been partly offset by a surge in exports in advance of tariffs being imposed.
Jobs and Wages
Employment growth strengthened in November through January, and the unemployment rate fell to 6.6%. In February, job growth stalled. While past rate cuts have boosted demand for labour, there are warning signs that trade tensions could disrupt the recovery in the jobs market.
Wage growth has shown signs of moderating.
Inflation Near Target
Inflation remains close to 2%. The temporary suspension of the GST/HST lowered some consumer prices, but January's CPI came in slightly firmer than expected at 1.9%. Inflation is expected to increase to about 2.5% in March with the end of the tax break.
The Bank's preferred measures of core inflation remain above 2%, mainly because of persistent shelter price inflation. Short-term inflation expectations have risen in light of fears about the impact of tariffs on prices.
Why Another Cut
Economic growth has come in stronger than expected, but the constant uncertainty from changing U.S. tariff threats is holding back consumer spending and business plans to hire and invest. With inflation close to the 2% target, Governing Council decided to cut the policy rate by another quarter point.
The Bank is clear: monetary policy can't offset the impacts of a trade war. What it can and must do is ensure higher prices don't lead to ongoing inflation. The Council will be carefully assessing the timing and strength of downward pressures on inflation from a weaker economy and upward pressures from higher costs. They'll also be closely monitoring inflation expectations. The Bank is committed to maintaining price stability for Canadians.
What This Means for Your Mortgage
Rates are lower than they've been in a long time, and the Bank is walking a careful line between supporting growth and keeping inflation in check. If you're renewing soon or thinking about a purchase, these moves give you room to lock in better terms — but the outlook is unusually uncertain.
If you want to talk through what today's cut means for your situation, reach out. We'll map out your options without the jargon.
