The Bank of Canada is once again dropping its overnight rate to keep up with the economic instability amid a trade war.
Marking its seventh consecutive reduction, the central bank announced on Tuesday that it dropped its key policy rate to 2.75 per cent, while its bank rate continues to sit at 3.25 per cent and the deposit rate at 2.95 per cent.
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This decision comes as Canada navigates tensions with the United States’ tariffs imposed on Canadian goods, which are expected to slow down economic activity and place upward pressure on inflation.
The Bank of Canada boasts that the nation’s economy appeared to be in a relatively strong position at the beginning of 2025, growing by 2.6 per cent in the fourth quarter of 2024, which is up from 2.2 per cent in the third quarter. However, it predicts that growth will likely slow down as the trade conflict intensifies.
“While it is still too early to see much impact of new tariffs on economic activity, our surveys suggest that threats to new tariffs and uncertainty about the Canada US trade relationship are already having a big impact on business and consumer intentions,” Bank of Canada governor Tiff Macklem said in a press conference on Tuesday morning.
HOW WILL THIS RATE CUT IMPACT THE HOUSING MARKET?
With a decrease in interest rates over the last few months, the Bank of Canada says the cuts have boosted economic activity especially in housing.
But experts suggest the cuts will have a limited impact on how homebuyers choose to enter the market.
Licensed mortgage broker and expert at LowestRates.ca expert Leah Zlatkin says the rate cut may help in reducing prices, but it may not be enough for homebuyers to take a leap.
“The Bank of Canada’s rate cut is a positive step, but it’s not going to dramatically change the spring housing picture,” Zlatkin explained in an email statement.
“Trade tensions and worries about a recession are making buyers hesitate. While the rate cut helps a bit, it probably won’t be enough to get homebuyers feeling confident enough to jump into the market this spring.”
As of February, the average home price in Toronto was $1,084,547. With interest rate cuts lowering the current prime rate, at 4.20 per cent, monthly mortgage payments for a home in the city would become approximately $4,659, a decrease of about $71 per month.
RATESDOTCA mortgage and real estate expert Victor Tran echoed similar sentiments, saying that while the cuts are sure to ease monthly payments, it may not be enough motivation for homebuyers, especially in a volatile climate.
“While more affordable mortgage rates are a good thing, the current economic climate is not stable and is not an encouraging environment for home purchases,” Tran said in an email on Wednesday.
“An ongoing trade war and fear of a potential recession later in the year are weighing on people’s minds, and they may be thinking twice about taking on a large amount of debt such as a mortgage. They will likely want to wait and see what happens in the coming months before choosing to enter the market.”
Nevertheless, Tran also predicts that we’ll begin to see a more competitive housing market.
“We are likely to see continuing downward trends in mortgage interest rates and increased competition between lenders for mortgage business. Last week lenders began cutting fixed rates in response to ongoing downward trends in the bond yield market, with some posted rates for certain mortgage products below 4 per cent,” he said.
The central bank’s next scheduled date for announcing the overnight rate target is Apr. 16, 2025.
