On March 12th, the Bank of Canada made a significant move by lowering the target for the overnight lending rate by 25 basis points to 2.75%. This marks the seventh consecutive reduction in interest rates since June 2024. While the rate cut is a response to growing economic concerns, particularly from ongoing trade tensions with the United States, it also presents an opportunity for homebuyers and mortgage holders as borrowing costs decrease.
Economic Outlook and the Role of the Bank of Canada
In its announcement, the Bank of Canada stated that the Canadian economy had started 2025 on a solid footing. However, the uncertainty caused by a trade war with the U.S. has started to impact consumer confidence, household spending, and business investments. The Bank cited this growing uncertainty as one of the key factors behind its decision to lower the overnight rate.
Tiff Macklem, Governor of the Bank of Canada, emphasized that although inflation remained close to the 2% target, the persistent volatility created by U.S. tariff threats warranted further policy action. The Bank is mindful of the economic risks ahead, noting that the trade conflict is expected to slow growth while putting upward pressure on inflation. The Bank will carefully monitor these factors and adjust its policy stance as needed to maintain economic stability.
Inflation, measured by the Consumer Price Index (CPI), rose to 1.9% in January, slightly up from 1.8% in December. This modest increase was driven by higher gasoline and energy prices. However, inflation remains under the Bank’s 2% target and is expected to rise further to 2.5% in March due to the expiry of the GST/HST tax relief.
The Impact on the Housing Market and Homebuyers
While trade tensions with the U.S. may dampen the broader economy, the housing market could see a boost from the Bank of Canada’s decision to cut interest rates. Lower borrowing costs offer an opportunity for prospective homebuyers to increase their buying power, especially for those considering a home purchase or approaching mortgage renewal this spring.
Phil Soper, president and CEO of Royal LePage, pointed out that these consecutive rate cuts give homebuyers an edge in an increasingly unpredictable economic environment. “Purchasers who are motivated to transact this spring are well-positioned to use their enhanced borrowing power to their advantage,” he said. “With more inventory to choose from, those looking to buy a home will likely benefit from the lower rates.”
While ongoing trade disputes may make some consumers hesitant, the housing market is expected to remain resilient. Soper noted that despite potential slowdowns, the housing market is insulated from many of the pressures of the trade war, meaning it is likely to recover as economic conditions stabilize.
Mortgage Renewals: What Homeowners Need to Know
For many Canadians, mortgage renewal is on the horizon, and the Bank of Canada’s rate cuts may provide some relief. According to a recent Royal LePage survey, more than half (57%) of Canadians who plan to renew their mortgages in 2025 expect their monthly payments to increase. However, for those renewing in the near future, the lower interest rates could mean smaller payments or more flexibility in their mortgage terms.
The survey also revealed that 25% of respondents expect their monthly payments to remain about the same, while 15% anticipate a decrease upon renewal. Homeowners may want to consider locking in a lower interest rate now, while the rates are still relatively low.
Looking Ahead: What’s Next for the Bank of Canada?
The Bank of Canada is closely monitoring economic conditions and will make its next interest rate announcement on Wednesday, April 16th. Given the ongoing trade challenges and inflationary pressures, further rate cuts may be on the horizon as the Bank continues to prioritize economic stability.
For those planning to buy a home or renew their mortgage, this could be a crucial time to take advantage of the lower borrowing rates before any potential changes in the coming months.
