Key Takeaways:
- On April 16, the Bank of Canada (BoC) will make its next rate announcement
- TD Director of Economics James Orlando said the central bank could either announce another 25 basis points cut, or decide to hold its rate at 2.75%
- If the BoC cuts its lending rate, it will become cheaper for Canadians to borrow money. If the rate stays the same, not much will change for everyday Canadians
Canadians are eagerly waiting to see whether the Bank of Canada (BoC) will cut its lending rate again at its upcoming April 16 announcement.
In March, Canada’s central bank cut its lending rate by 25 basis points, bringing the rate down to 2.75%. The cut was the BoC’s second rate reduction this year, as it also cut its lending rate by 25 basis points in January.
So, will there be a third consecutive cut in 2025? According to TD Director of Economics James Orlando, the BoC could go either way and announce a rate cut or a rate hold.
“TD Economics’ forecast is that central bank will make another cut of 25 basis points, but there is still a possibility the BoC will hold its rate. Following the [federal government's] March jobs report, a cut is increasingly likely,” Orlando said.
“There's a chance that the BoC could pause its lending rate, but if it wanted to cut, there's ample reason for that decision, too. We're going to have to wait and see.”
Factors at play leading to a “wait-and-see" approach
With U.S.-imposed tariffs hitting Canadian exports, there is significant concern around the economic impact. Orlando said that tariffs aside, the health of the Canadian economy has been resilient.
“Growth has been quite strong, consumer spending has been picking up, and auto sales are doing well. As a result, prior to the increase in economic uncertainty, GDP was on track to be strong in 2025,” he said.
These factors have caused inflation to pick up slightly, since more consumer demand leads to higher prices for goods. This situation, Orlando said, could cause the BoC to hold its lending rate.
“The Bank of Canada might think, ‘Let’s take a pause; we don’t need to stimulate the economy anymore,’” he explained.
But with the evolving tariff situation, the outlook is murkier. Tariffs pose a risk to the health of the Canadian economy, not just in the short-term, but long-term too, Orlando said.
“If a central bank is looking towards the future, and it looks bad, it can take out some insurance today," he said. "And insurance, in the Bank of Canada’s mind, is more rate cuts. Plus, the central bank could also hang its hat on the emerging weakness coming from the labour market.”
What a Bank of Canada rate cut could mean for Canadians
The BoC’s lending rate is important for Canadians with loans or for those looking to borrow money. The central bank’s lending rate influences the interest rates banks charge on financial products such as mortgages, personal loans, and business loans.
That means when the BoC cuts its lending rate, it can become cheaper to borrow money. And when the BoC’s lending rate goes up, it can become more expensive.
For Canadians with variable rate mortgages who have fixed payments, rate cuts can mean more of their mortgage payment goes towards the principal of the mortgage, and less towards interest. Homeowners 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 as those mortgage rates are based on five-year bond yields.
What a Bank of Canada rate hold could mean for Canadians
If the BoC holds its lending rate at 2.75%, not much will change for the average Canadian.
For Canadians with both variable rate mortgages and fixed rate mortgages, things should remain status quo.
Will the Bank of Canada announce more rate cuts in 2025?
Orlando said that TD Economics is predicting that the BoC will eventually bring its lending rate down to around 2% by the end of 2025.
“That 2% level is this nice, balanced rate that doesn't spur growth to be too high, and doesn't cause growth to be too low,” he said.
“That's where we think the BoC is going to end up. But how long it takes to get there? Right now, it is hard to tell.”