Will the Bank of Canada Cut the Prime Rate Again on January 29, 2025? A Mortgage Broker’s Perspective
As the Bank of Canada prepares for its next rate announcement on January 29, 2025, Canadians are closely watching the economic and political landscape. Many speculate another rate cut could be on the horizon, following the Bank’s recent trend of easing monetary policy. This speculation has raised questions for homeowners, potential buyers, and investors about what it means for borrowing costs, the Canadian dollar, and even the broader economy.
In this blog, I’ll break down:
- The likelihood of another prime rate cut.
- How rate cuts impact the Canadian dollar.
- The potential ripple effects of Donald Trump’s return to the U.S. presidency on January 20, 2025.
- Why now might be the perfect time to reassess your mortgage strategy.
Let’s dive in.
The Case for Another Rate Cut
Canada’s Economic Context
In late 2024, the Canadian economy showed signs of slowing growth, prompting the Bank of Canada to lower its benchmark interest rate twice in quick succession. These cuts aimed to stimulate economic activity by making borrowing cheaper for consumers and businesses. However, inflation remains below the Bank’s target range of 2%, and wage growth has been sluggish.
Recent commentary from economists at the Globe and Mail suggests that another rate cut is not off the table, especially as global economic uncertainty looms. With the U.S. Federal Reserve expected to hold rates steady or cut them slightly to support their own slowing economy, the Bank of Canada may feel pressure to follow suit. https://www.theglobeandmail.com/investing/markets/inside-the-market/article-the-bearish-case-on-the-canadian-economy-is-fading-how-economists-and/
Housing Market Impact
For Canadians, mortgage rates are directly tied to the prime rate. A cut in the prime rate lowers variable mortgage rates, making homeownership more affordable for some and potentially encouraging refinancing for others.
According to Rob Lister’s Mortgage Blog, each 0.25% rate cut could save variable-rate mortgage holders hundreds of dollars annually. This can be significant, especially for first-time buyers or those with tight budgets.
How Rate Cuts Affect the Canadian Dollar
When the Bank of Canada lowers interest rates, the Canadian dollar often weakens relative to other currencies. This occurs because lower rates make Canadian investments less attractive to foreign investors, reducing demand for the loonie.
The Dollar’s Recent Performance
The Canadian dollar has already softened against the U.S. dollar in anticipation of further rate cuts. Analysts from CBC News note that a weaker dollar can be a double-edged sword:
- On the positive side, it boosts exports by making Canadian goods cheaper for foreign buyers.
- On the downside, it raises the cost of imported goods, potentially fueling inflation—a factor the Bank of Canada must carefully balance.
For homeowners considering cross-border investments or purchasing U.S.-sourced materials for renovations, these shifts in the exchange rate are worth noting.
The Trump Effect: How U.S. Politics Could Play a Role
Donald Trump’s return to the White House on January 20, 2025, introduces another layer of complexity. His administration’s policies on trade, energy, and taxation could directly affect Canada’s economy.
Trade Tensions and Energy Markets
Canada’s heavy reliance on the U.S. as a trading partner means that any shifts in U.S. policy could have immediate consequences for Canadian businesses. If Trump reinstates protectionist trade policies or imposes tariffs, this could dampen Canadian economic growth, further incentivizing the Bank of Canada to cut rates.
Investor Sentiment
Historically, Trump’s policies have created market volatility. If his administration prioritizes aggressive fiscal stimulus, the U.S. dollar could strengthen further, placing additional downward pressure on the Canadian dollar. A weaker loonie could, in turn, prompt the Bank of Canada to take action to stabilize the economy.
What Does This Mean for Your Mortgage?
With so many variables at play—economic slowdowns, shifting trade policies, and a potential rate cut—2025 is shaping up to be a pivotal year for Canadian homeowners and buyers.
Variable-Rate Mortgages
If you already have a variable-rate mortgage, a rate cut could mean immediate savings. But remember, these savings depend on how much of the cut lenders pass on to consumers.
Fixed-Rate Mortgages
Fixed rates are influenced more by bond yields, which could also decline if the economic outlook worsens. If you’ve been considering locking in a fixed rate, now might be the time to explore your options.
Renewals and Refinancing
If your mortgage is up for renewal or if you’re considering refinancing to consolidate debt, a lower rate environment can work in your favor. However, timing is key, as lenders may adjust their offerings quickly based on market conditions.
Let’s Talk Mortgages
As a Canadian mortgage broker, my job is to help you navigate these uncertain times with confidence. Whether you’re a first-time buyer, a seasoned investor, or simply looking to renew or refinance your mortgage, I can guide you through the options to find the best solution for your needs.
The Bank of Canada’s January 29 decision could shape the financial landscape for months to come. Don’t wait to see how it affects your mortgage. Let’s have a conversation today to discuss your goals and ensure you’re well-prepared for what’s ahead.
Contact me today and let’s talk mortgages! https://www.mortgagewithlyndsy.com/about