Key Takeaways:
- On March 12, the Bank of Canada (BoC) will make its next lending rate announcement
- The BoC’s lending rate influences the interest rates banks charge on financial products such as mortgages and loans
- TD Economist Derek Burleton said TD Economics is predicting the central bank will cut its lending rate by 25 basis points, bringing it down to 2.75%
With the second Bank of Canada (BoC) rate announcement this year around the corner on March 12, many Canadians are eager to see if the central bank will cut its lending rate again.
In January, the BoC cut its lending rate by 25 basis points, bringing it down from 3.25% to 3%.
So, is more rate relief on the way? According to TD Economist Derek Burleton, the BoC is likely to cut its lending rate at the upcoming announcement by 25 basis points.
“We are anticipating a follow-up cut in March, and TD Economics predicts the central bank will bring its lending rate down to 2.75%,” Burleton said.
"Since the inflation data came out a few weeks ago, market odds of a cut fell as low as 30%, but have since jumped to 90% following the imposition of U.S. tariffs on Canadian exports. So, while there’s still a chance that the central bank will announce a rate hold, there is a growing consensus that a cut is in store.”
Burleton explained that the Bank of Canada needs to help prepare for the economic risks on the horizon – especially around tariffs.
"Even with recent reports showing a resilient job market and robust GDP growth in Canada, the central bank needs to ensure the economy is prepared for U.S. tariffs to hit Canadian exports,” he said.
What a rate cut could mean for Canadians
The BoC’s lending rate is used as a benchmark for the interest rates banks charge on financial products such as mortgages, personal loans, and business loans.
When 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 to take out a loan.
For Canadians with a variable rate mortgage, a rate cut can mean more of their payment goes towards the principal of the mortgage, and less towards interest. For Canadians with fixed rate mortgages, a BoC rate cut does not necessarily have an impact since fixed rate mortgages are typically priced on five-year bond yields.
Navigating economic factors
There is uncertainty in the economy at the moment with U.S.-imposed blanket tariffs on Canadian exports, and the threat of more levies on the horizon, Burleton said. Tariffs will have a severe impact on Canada’s economy and job markets.
What’s more, Canadian retaliatory tariffs on U.S. exports will put upward pressure on inflation, Burleton said.
"If the U.S. keeps that tariff cloud hanging over our economy, it is likely to weigh negatively on investment and hiring, and lead to weaker economic outcomes,” Burleton said.
What’s next?
According to Burleton, TD Economics predicts that regardless of whether the BoC cuts or holds its rate this March, more rate cuts are on the way in 2025.
"We’re forecasting that we will see more rate cuts this year, bringing the lending rate down to 2.25% by the end of the year,” he said.