Bank of Canada's First Rate Cut of 2025: What You Need to Know

By: Fahd Hasan, MBA, CIP

The Bank of Canada (BoC) is set to announce its first interest rate decision of 2025 on January 29, with widespread expectations pointing towards a 25 basis point cut. This move would bring the overnight lending rate down from 3.25% to 3.00%, marking a significant shift in monetary policy. As a mortgage specialist, I'm here to break down what this means for you and the real estate market.

Economic Factors Driving the Decision

The BoC's decision is influenced by several key economic indicators:

1. Inflation: The inflation rate has eased to 1.8% in December 2024, within the BoC's target range. However, core inflation measures remain above the 2% target at around 2.5%.
2. Economic Growth: Canada's economy shows mixed signals, with fourth-quarter GDP growth expected to be around 1.5% annualized.
3. Unemployment: The jobless rate has trended upwards, reaching 6.7% compared to a 2022 low of 4.8%.

The Trump Factor

President Donald Trump's threat to impose a 25% tariff on Canadian exports is creating uncertainty and could negatively impact Canada's economic outlook. This external pressure is likely influencing the BoC's decision-making process.

What This Means for Mortgages

For homeowners and potential buyers, this rate cut could translate to lower mortgage rates. Here's what you need to know:

• Variable-rate mortgages may see immediate benefits.
• Fixed-rate mortgages could also decrease, but the change may be less dramatic.
• This environment could present refinancing opportunities for some homeowners.

Looking Ahead

While a rate cut seems likely, the BoC's future moves remain uncertain. Economists from various institutions have different predictions:

• TD Economics forecasts further rate reductions, potentially to 2% by year-end.
• RBC economists predict the rate will settle at 2% to facilitate economic growth.
• CIBC and Desjardins Group foresee the overnight rate declining to 2.25% by the end of 2025.

As your mortgage specialist, I'm here to help you navigate these changes. Whether you're looking to purchase, refinance, or simply understand how these rate changes affect your current mortgage, don't hesitate to reach out.

??: Fahd Hasan MBA, CIP

??: 647-667-3703

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