Bank of Canada Cuts Interest Rates: Another 50 Basis Point in April?
On March 12, 2025, the Bank of Canada (BoC) reduced its benchmark interest rate by 25 basis points, bringing it down to 2.75%. This decision marks the seventh consecutive rate cut in the current monetary easing cycle. The central bank's move aims to counteract the economic uncertainties arising from escalating trade tensions with the United States, particularly in light of recent tariffs imposed by the U.S. administration. But what does this mean for Canadians, and could we see an even larger cut in April?
Why the Bank of Canada Cut Rates
The BoC’s decision is largely a response to economic slowdown and growing uncertainty in global trade. The recent imposition of tariffs by the U.S. on Canadian goods has led to increased costs for businesses and consumers, dampening investment and economic growth.
Before the rate cut, the Canadian economy showed signs of losing momentum. While the fourth quarter of 2024 saw a growth rate of 2.6%, concerns over trade policy caused businesses to delay investments and consumers to cut back on spending. Inflation remained near the 2% target but was expected to rise temporarily due to supply chain disruptions and tariffs. Employment growth, which had been recovering, also faced new challenges from these trade-related uncertainties.
Governor Tiff Macklem emphasized that while inflation remains a concern, the bank’s primary goal is to provide support for the economy. The rate cut is aimed at reducing borrowing costs and encouraging spending to keep growth on track.
How This Impacts Borrowers and Homeowners
For borrowers, this rate cut is largely good news. Those with variable-rate mortgages, lines of credit, and other loans tied to the prime lending rate will see a decrease in their interest payments. The cost of borrowing is now lower, making it an opportune time for individuals and businesses to refinance loans or take on new debt at lower interest rates.
Benefits for Variable-Rate Mortgage Holders
One of the most immediate benefits of this rate cut is felt by homeowners with variable-rate mortgages. Since these mortgages fluctuate with the BoC’s policy rate, monthly mortgage payments will drop, providing relief for those who have been facing higher costs due to previous rate hikes. Lower mortgage payments mean increased cash flow for households, which could be redirected toward savings, investments, or spending—boosting the broader economy.
More Affordable Credit Lines and Loans
Lower interest rates also mean more affordable personal loans, business loans, and home equity lines of credit (HELOCs). Businesses looking to expand or make capital investments now have cheaper financing options, which could encourage economic growth in the long run.
However, for savers, lower interest rates mean lower returns on savings accounts and fixed-income investments, which could push some to seek higher-risk investments in search of better returns.
Market Reactions and Expert Opinions
The financial markets had largely anticipated the 25-basis-point rate cut. Economists, including Derek Holt of Scotiabank and Doug Porter of BMO Capital Markets, noted that the central bank appears cautious about future rate cuts. Holt highlighted that the bank remains committed to keeping inflation within its target range, while Porter pointed out that future cuts will depend on how trade tensions evolve.
Will There Be a Bigger Rate Cut in April?
Looking ahead to the BoC’s next policy meeting on April 16, there is growing speculation about the possibility of a larger, 50-basis-point rate cut. The probability of a more aggressive cut will depend on several factors:
Trade Developments: If tensions with the U.S. escalate further, the BoC may be forced to cut rates more aggressively to offset economic damage.
Economic Data: Key indicators such as GDP growth, employment numbers, and consumer spending trends will influence the decision. If data shows further weakness, the likelihood of a larger cut increases.
Inflation Trends: The central bank will closely monitor inflation. If inflation remains contained, the BoC will have more room to cut rates.
Global Economic Conditions: If other major central banks take a more dovish stance, the BoC may follow suit to maintain Canada’s economic competitiveness.
Some economists at BMO have revised their forecasts to include quarter-point cuts at each of the BoC’s next four meetings, which would bring the policy rate down to 2% by July 2025. However, others believe that if the economy shows significant weakness, a larger 50-basis-point cut in April may be on the table.
Conclusion: A Silver Lining for Borrowers
The recent rate cut offers relief to borrowers and businesses, making it easier to manage debt and finance new investments. While economic uncertainty remains due to global trade tensions, lower interest rates can provide a boost by making borrowing more affordable.
As we approach the April 16 BoC announcement, all eyes will be on economic data and global trade developments. For now, those with variable-rate mortgages and loans can take advantage of lower borrowing costs, while prospective homebuyers may find this an opportune time to enter the market before rates change again.
Whether the BoC opts for a more aggressive rate cut in April remains to be seen, but one thing is certain: lower interest rates are creating new opportunities for Canadians looking to borrow, invest, or refinance.