BOC Rate Cut and Tariffs Kick Off 2025: Preparing Your Mortgage Strategy Amid Economic Uncertainty On January 29, the Bank of Canada (BOC) reduced the overnight rate by 0.25% to 3.0%, marking its sixth consecutive rate cut and a total of 2.00% in cuts since the start of this loosening cycle. This adjustment brings the average bank Prime rate for consumers to 5.20%. The BOC also announced the end of its “quantitative easing” program, which had injected extra funds into the economy during the pandemic. The focus has now shifted toward stabilizing economic growth while managing inflation.
Key factors influencing the Bank's decisions include: Economic Slack and Inflation: Inflation remains very low at 0.7% (year-on-year, excluding housing costs), and the job market is still showing signs of weakness. This gives the Bank room to lower rates further if needed to stimulate growth. While economic underperformance ("slack") persists, improving job data hints at the potential for recovery.
Residential Construction Concerns: The BOC anticipates residential construction to pick up but acknowledges headwinds such as high five-year mortgage rates and declining condo presales. Lower rates may provide some relief to homebuyers and developers by improving affordability.
Tariff Impacts:
As of February 1, new U.S. tariffs on Canadian goods took effect, and Canada
imposed retaliatory 25% tariffs on U.S. goods starting February 4. These measures are expected to slow economic growth by disrupting trade while temporarily increasing the price of certain goods.
For the mortgage market, these tariffs pose additional risks. The higher costs
from tariffs could put upward pressure on inflation, limiting the Bank’s ability to make further rate cuts despite economic slack. Additionally, increased uncertainty around trade could lead to more conservative lending and borrowing behaviours, affecting mortgage approvals and homebuying activity.
Market Reaction: Following the rate cut announcement, the Canadian dollar weakened, and bond yields fell, but both partially rebounded during the press conference. Lower bond yields may provide some downward pressure on fixed mortgage rates, creating an opportunity for borrowers to lock in competitive rates despite economic uncertainty.
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For any mortgage questions and referrals please contact Tyler:
Tyler Lipinski, Mortgage Agent Level 2
647.868.1427 | tyler@vinegroup.ca
555 Bloor St. E., Toronto, ON M4W 1J1
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