The Bank of Canada makes its second rate announcement of the year on March 12, with most of Canada’s big banks predicting a .25% cut to the bank’s overnight rate, taking to 2.75%.
Douglas Porter, chief economist and managing director at Bank of Montreal agrees the Bank of Canada will cut the rate by .25%, and goes further, predicting the bank will cut the rate by .25% at each of its three announcements after March 12 (April 16, June 4, and July 30) due to the US imposed tariffs on Canada.
Penelope Graham, a mortgage specialist at Ratehub.ca is also in agreement about the upcoming noncement.
“Now that blanket import tariffs have been officially implemented, it’s looking more likely that the Bank of Canada will cut by another quarter of a percentage point on March 12, as it uses the tools on hand to shore up the economy as best it can amid an uncertain outlook,” says Graham.
“The trajectory for future central bank cuts hangs largely on how long tariffs remain in force. If they persist, the Bank of Canada will need to adjust its target rate to counter the damage being done to the economy, despite the inflation risks that come alongside a very accommodating rate."
“While core inflation will continue to be a focus for the bank, it may have to sacrifice keeping it at its 2% target in the future if economic stimulus is needed.”
The Bank of Canada’s rate has some bearing on mortgage rates, which are more guided by bond yields, says Graham.
“Bond yields plunged to 2.5% on March 4, in response to tariffs taking effect. They’ve since recovered to the 2.6% range, following the concession of a month-long reprieve for Canada’s auto sector,” she says. “Overall, lower yields have given lenders the room to decrease their fixed mortgage rates, with the best insured five-year fixed rate in Canada now 3.84%, a low not seen since June 2022. This has narrowed the spread between the lowest fixed and variable rate to just 36 basis points, offering borrowers more rationale to lock in.”
Regardless of the lower rates, Canadians may not be in a home-buying mood given the economic uncertainties ahead.
“This is an especially volatile time to be shopping for a home or a mortgage rate,” says Graham. ”Tariff uncertainty is already being felt in the housing market, with national sales dropping on a monthly basis in January.”
“The safest course of action for mortgage borrowers, whether getting a new rate or coming up for renewal, is to get an application or rate hold in with a lender as soon as possible. This will help them hedge against rate volatility in the near future, while providing access to the lowest rates available to them today.”
If the bank goes ahead with a .25% cut, there could be payment savings for mortgage holders, says Graham, giving the following example
“According to Ratehub.ca's mortgage payment calculator, a homeowner who put a 10% downpayment on a $499,967 home (average price for a home in Alberta in January) with a five-year variable rate of 4.20% amortized over 25 years (total mortgage amount of: $463,919), has a monthly mortgage payment of $2,491,” she says. “If the Bank of Canada announces a 25-basis point rate decrease, their variable mortgage rate will decrease to 3.95% and their monthly payment will decrease to $2,428”.
“This means that the homeowner will pay $756 less per year on their mortgage payments."