The question on everyone’s mind as we head into Spring 2025: Will interest rates drop in Canada this year? With the Bank of Canada holding its overnight lending rate at 5.00% since July 2023, many Canadians are anxiously awaiting signs of a rate cut. Here’s what current data, expert forecasts, and economic indicators suggest for the months ahead—and what that means if you’re planning to buy, invest, or refinance.
The Current Landscape: Where We Stand in Early 2025
As of March 2025, the Bank of Canada has maintained its policy interest rate at 5.00% for more than 20 months. This historically high rate was implemented to combat post-pandemic inflation, which peaked in mid-2022.
According to Statistics Canada, the national inflation rate cooled to 2.6% in February 2025, getting closer to the Bank’s 2% target. This progress has fueled speculation that a rate cut may be on the horizon.
Expert Predictions: When Will Rates Drop?
Economists from RBC, BMO, and TD suggest that the first rate cut could come as early as June 2025, provided inflation continues to decline and wage growth stabilizes.
A recent Reuters poll (February 2025) of 25 Canadian economists showed that 80% expect a rate cut by mid-2025, with most anticipating a 0.25% reduction. However, the Bank of Canada remains cautious, noting that underlying core inflation is still slightly above target.
What Lower Rates Could Mean for You
For Home Buyers:
A rate cut could offer a much-needed boost in affordability. According to CREA, the national average home price was $685,809 in February 2025, up 3.2% year-over-year. Lower interest rates would reduce monthly mortgage payments, increasing purchasing power for first-time buyers.
For Real Estate Investors:
Investors may benefit from improved cash flow as mortgage rates decline. However, falling rates could also mean increased competition and upward pressure on prices in hot markets like Calgary, Halifax, and the Greater Toronto Area.
For Current Homeowners:
If you’ve been waiting to refinance, a rate cut could create an opportunity to lock in a lower fixed rate. Just be cautious—if your mortgage is up for renewal this year, it’s still worth budgeting for higher payments than during pre-2022 levels.
Bottom Line: Stay Ready, Not Reactive
While a rate cut is increasingly likely in the second half of 2025, the Bank of Canada will move cautiously. It’s crucial to stay informed and work with a trusted mortgage professional to weigh your options.
Whether you’re house-hunting, investing, or simply trying to stay ahead of market changes, understanding the ripple effects of interest rates in 2025 can empower better financial decisions.
References
Bank of Canada. (2025). Policy interest rate. https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
Statistics Canada. (2025). Consumer Price Index, February 2025. https://www150.statcan.gc.ca/n1/en/subjects/consumer_prices
Canadian Real Estate Association (CREA). (2025). National average home price data. https://www.crea.ca/housing-market-stats/
Reuters. (2025, February). Canadian economist survey: Interest rate forecast. https://www.reuters.com/markets/rates-bonds/canada-interest-rate-forecast-2025
RBC Economics. (2025). Economic and financial market outlook. https://thoughtleadership.rbc.com/
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