The Bank of Canada’s rate announcement confirms a reduction in its key interest rate to 2.75%, while the prime lending rate—which impacts variable-rate mortgages, lines of credit, and HELOCs—remains at 4.95%.
The Canadian economy started 2025 strong, with solid growth and inflation close to the 2% target. However, rising trade tensions and new U.S. tariffs are expected to slow the economy and push prices higher. With ongoing policy uncertainty, the outlook remains unclear.
After a period of solid growth, the U.S. economy has recently cooled, while inflation is still slightly above target. Europe saw modest growth at the end of 2024, and China’s economy remains strong thanks to government support. Stock markets have dipped, bond yields have dropped, and oil prices are lower than expected. The Canadian dollar remains steady against the U.S. dollar but has weakened against other currencies.
The job market saw strong growth from November to January, bringing unemployment down to 6.6%, but hiring stalled in February. While rate cuts have helped job creation, ongoing tariff uncertainty could slow further recovery. Wage growth has also started to level off.
Inflation remains near the 2% target, with January’s rate at 1.9%. A temporary tax break briefly lowered prices, but as the tax break ends, inflation is expected to rise to 2.5% in March. Core inflation is still above 2%, largely due to rising shelter costs. Short-term inflation expectations have also increased due to concerns about tariff-related price hikes.
While monetary policy can’t stop the effects of a trade war, it plays a key role in ensuring temporary price hikes don’t turn into long-term inflation. The Bank will closely monitor inflation trends and economic conditions to maintain stability for Canadians.
The next rate announcement is scheduled for Wednesday, April 16, 2025.