This morning, the Bank of Canada announced a decrease in its key interest rate by 0.25%. The prime rate has decreased from 5.20% to 4.95%. As a result, variable-rate mortgage holders will see a decrease of approximately $15.34 per month for every $100,000 of mortgage.
At the start of 2025, Canada’s economy was in good shape. Inflation was close to the 2% target, and the economy was growing well. However, trade tensions with the U.S. and new tariffs could slow things down and drive prices up. The future of the economy is uncertain because government policies keep changing.
The U.S. economy, after strong growth, has started to slow down, with inflation slightly above its target. Stock prices have dropped, and bond yields (a measure of investment returns) have gone down because people expect slower growth in North America. Oil prices have been unpredictable and lower than expected. The Canadian dollar is about the same value as the U.S. dollar but has lost value compared to other currencies.
Canada’s economy grew by 2.6% in the last quarter of 2024, which was stronger than expected. This growth was helped by earlier interest rate cuts, which made borrowing money cheaper, encouraging people to spend more—especially on housing. But in the first quarter of 2025, growth will likely slow because of trade conflicts, which have made businesses and consumers more cautious. Many businesses have delayed or canceled investments, and consumer confidence (how people feel about spending money) has dropped. Some companies rushed to export goods before new tariffs were put in place, which helped balance out the slowdown.
The job market was strong from November to January, and unemployment fell to 6.6%. But in February, job growth stalled. Lower interest rates had helped create more jobs, but trade tensions may slow this progress. Wage growth has also started to slow down.
A temporary pause on some taxes made prices lower, but by January, inflation had risen slightly to 1.9%. In March, inflation is expected to reach about 2.5% with the end of the tax break. Housing costs continue to push inflation up, and people worry that tariffs will make prices rise even more.
Even though the economy grew more than expected, uncertainty caused by U.S. trade policies is making businesses and consumers hesitant to spend and invest. Because inflation is still close to the target, the Bank of Canada decided to cut interest rates again by 0.25% to help support the economy.
However, lower interest rates can’t fully fix the damage from a trade war. The Bank’s main job is to prevent inflation from getting out of control. It will closely watch how different factors—like slower economic growth and rising costs—affect inflation. The goal is to keep prices stable for Canadians.
The next Bank of Canada announcement will be on April 16, 2025.
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