Will the Bank of Canada Cut Interest Rates Again in March 2025?

Will the Bank of Canada Cut Interest Rates Again in March?

Key Takeaways:

• The Bank of Canada (BoC) will announce its next lending rate decision on March 12, 2025.
• The BoC’s lending rate impacts the interest rates banks charge on mortgages, loans, and other financial products.
• TD Economist Derek Burleton expects the BoC to cut its lending rate by 25 basis points, bringing it down to 2.75%.

With the next Bank of Canada rate announcement just around the corner, Canadians are watching closely to see if another interest rate cut is on the horizon.

In January 2025, the BoC lowered its lending rate by 25 basis points, reducing it from 3.25% to 3%. Now, many are wondering whether the central bank will take further steps to ease borrowing costs.

Will There Be Another Rate Cut?

According to TD Economist Derek Burleton, the BoC is likely to cut its lending rate again in March.

“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 stated.

Initially, market odds of a rate cut dropped as low as 30% following recent inflation data. However, these odds have surged to 90% after the U.S. imposed new tariffs on Canadian exports. While there’s still a possibility of a rate hold, experts believe that another cut is increasingly likely.

Burleton explained that economic risks, particularly U.S. tariffs, are a key concern for the Bank of Canada.

“Even though Canada’s job market and GDP growth have remained strong, the BoC must ensure the economy is prepared for the impact of U.S. tariffs on Canadian exports,” he said.

What a Rate Cut Means for Canadians

The BoC’s lending rate serves as a benchmark for the interest rates that banks charge on financial products, including mortgages, personal loans, and business loans.

• When the BoC lowers its rate, borrowing money can become cheaper for Canadians.
• When the BoC raises its rate, loans and mortgages typically become more expensive.

For Canadians with variable-rate mortgages, a rate cut could mean lower interest costs, allowing more of their payments to go toward the mortgage principal. However, for fixed-rate mortgage holders, changes in the BoC’s rate don’t immediately impact their payments, as fixed mortgage rates are usually tied to five-year bond yields.

Navigating Economic Uncertainty

Burleton highlighted that new U.S. tariffs on Canadian exports could significantly impact the economy and job markets.

Additionally, Canada’s retaliatory tariffs on U.S. goods could drive inflation higher.

“If the U.S. keeps a tariff cloud hanging over our economy, it could dampen investment and hiring, leading to weaker economic performance,” Burleton warned.

What’s Next?

Whether or not the BoC announces a rate cut in March, TD Economics predicts more rate cuts are coming in 2025.

“We’re forecasting additional cuts this year, bringing the lending rate down to 2.25% by the end of 2025,” Burleton said.

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