As the new year begins, Canadians are eagerly anticipating the Bank of Canada’s (BoC) first interest rate announcement of 2025. Scheduled for January 29, this update is expected to reveal key insights into the central bank’s strategy to address ongoing economic challenges. Experts are already weighing in on what to expect.
Reflecting on the Final Rate Cut of 2024
On December 11, 2024, the BoC reduced its key interest rate from 3.75% to 3.25%. This move came as Canada’s unemployment rate surged to 6.8% – the highest level since 2015, excluding pandemic years. While many predicted a smaller 0.25% reduction, the economic slowdown led to a more significant adjustment.
Expert Predictions for 2025
Last year, Penelope Graham, a mortgage expert at Ratehub.ca, described 2025 as a year likely to bring “another wild economic ride.” She highlighted the potential for trade tensions under U.S. President Donald Trump’s administration, which could significantly impact Canada’s economy.
“Simply put, the only constant Canadians can count on this year is upheaval,” Graham noted. “However, there are some mortgage trends starting to emerge.”
With trade disputes escalating and inflation slowing to 1.8% according to December’s Consumer Price Index (CPI), Graham anticipates the BoC may take further action to stabilize the economy.
According to Reuters, 80% of surveyed economists (25 out of 31) expect the Bank of Canada to implement a 0.25% rate cut during its January 29 announcement. The remaining six predict the BoC will hold rates steady to assess further economic developments (Reuters).
What to Expect on January 29
The January 29 announcement will include an interest rate update, monetary policy report, and commentary. Although a pause in rate changes was anticipated, recent data suggests another 0.25% rate cut might be imminent.
“Despite earlier signals that the Bank might slow its rate cuts, ongoing trade uncertainty and below-target inflation could prompt another quarter-point reduction,” Graham explains. “The central bank aims to build a buffer against economic shocks and keep the economy preemptively stimulated amid rising recession risks.”
The language in the BoC’s report will likely offer clues about its approach to managing potential recessionary pressures linked to trade tariffs.
The Impact of Trade Tariffs
President Trump’s proposed tariffs on Canadian goods, expected in February, have already created volatility in the bond market. Canadian five-year bond yields fell from 3.31% in November to 2.97% this week, potentially putting downward pressure on fixed mortgage rates. However, Graham warns that “rate pricing could change rapidly with shifting investor sentiment.”
For Canadians navigating the housing market, Graham recommends securing a mortgage pre-approval and locking in rates to protect against future increases.
How a Rate Cut Could Affect Mortgage Payments
Using Ratehub.ca’s calculator, here’s an example of how a 0.25% rate cut could impact a homeowner:
Maha bought a $676,640 home in December with a 10% down payment. Her five-year variable mortgage rate is 4.45%, resulting in a $3,458 monthly payment. If the BoC announces a 0.25% rate cut, her rate would drop to 4.20%, reducing her monthly payment to $3,371—a savings of $87 per month or $1,044 annually.
Important Dates for BoC Announcements in 2025
Here are the key dates to watch for BoC announcements this year:
- January 29, 2025 – Rate update, monetary policy report, and commentary
- March 12, 2025 – Rate update only
- April 16, 2025 – Rate update, monetary policy report, and commentary
- June 4, 2025 – Rate update only
- July 30, 2025 – Rate update, monetary policy report, and commentary
- September 17, 2025 – Rate update only
- October 29, 2025 – Rate update, monetary policy report, and commentary
- December 10, 2025 – Rate update only
Stay informed by following the BoC’s official social media accounts and monitoring financial news.
References
- James Orlando, TD Economics – Rate Predictions. URL: https://stories.td.com/ca/en/article/bank-of-canada-january-2025-rate-prediction
- Dustin Reid, Mackenzie Investments – Rate Predictions. URL: https://www.morningstar.ca/ca/news/259636/will-the-bank-of-canada-cut-rates-in-january.aspx
- Veronica Clark, Citi Economist – Rate Insights. URL: https://www.morningstar.ca/ca/news/259636/will-the-bank-of-canada-cut-rates-in-january.aspx
- Thomas Ryan, Capital Economics – Trade Impact Analysis. URL: https://www.reuters.com/markets/rates-bonds/bank-canada-likely-cut-rates-by-25bps-give-tariff-impact-analysis-2025-01-27
- Reuters. (2025). 80% of Economists Predict BoC Rate Cut. URL: https://www.reuters.com/markets/rates-bonds/bank-canada-likely-cut-rates-by-25bps-give-tariff-impact-analysis-2025-01-27
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