How many more Bank of Canada rate cuts could come this year?

Key Takeaways:

• The Bank of Canada is set to make another rate announcement on June 4
• TD Economics predicts that the central bank will deliver two more rate cuts this year, though the exact timing is up in the air
• When the central bank cuts its rate, it can become cheaper for Canadians to borrow money

If you’re a homeowner with a mortgage or someone looking to buy, you’ll likely be wondering what the Bank of Canada (BoC) is going to do this year when it comes to interest rates.

That’s because whenever the BoC cuts its lending rate, it can become cheaper for Canadians to borrow money. And when the BoC raises its lending rate, it can become more expensive.

According to TD Economics, the central bank might offer some rate relief in the coming months.

The ongoing softness in the labour market should open the door for the BoC to cut interest rates two more times this year, despite the recent uptick in inflation.

Amid trade tensions with the U.S., Andrew Hencic, Director and Senior Economist at TD Economics, said two cuts of 25 basis points each could help support the economy without putting too much more pressure on inflation. That means the current rate of 2.75% could come down to 2.25% by the end of the year.

“We think that enough slack has accumulated in the economy that there's space for the central bank to cut its lending rate a little bit more without too much inflationary pressure coming through,” Hencic said.

What lending rate cuts could mean for Canadians

The central bank’s lending rate influences the interest rates banks charge on products such as mortgages, business loans, and personal loans. So BoC rate cuts generally mean that Canadians see lower interest rates on loans.

For Canadians who have variable rate mortgages with fixed payments, rate cuts can mean more of their payment goes towards the principal of the mortgage, and less towards interest. Homeowners who have a variable rate mortgage with variable payments could see their total payment shrink.

For Canadians with fixed rate mortgages, a BoC rate cut does not immediately make an impact since fixed rate mortgages are commonly based on five-year bond yields.

Navigating uncertainty

While TD Economics thinks the BoC will cut its lending rate two more times in 2025, Hencic stressed that the current economic environment means the central bank is navigating through choppy waters.

With the U.S. trade war at play, the central bank is monitoring its impacts and any changing policies. That means no forecasts are set in stone, Hencic said.

“The name of the game here is uncertainty,” Hencic said. “The central bank is going to try and stay nimble and responsive. And as things change, it will most likely finetune its approach.”