Bank of Canada Rate Announcement Jan 29th, 2025

Marci Deane • January 29, 2025

Bank of Canada reduces policy rate by 25 basis points to 3%, announces end of quantitative tightening.

FOR IMMEDIATE RELEASE

January 29, 2025

The Bank of Canada today reduced its target for the overnight rate to 3%, with the Bank Rate at 3.25% and the deposit rate at 2.95%.1 The Bank is also announcing its plan to complete the normalization of its balance sheet, ending quantitative tightening. The Bank will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly, in line with growth in the economy.2

Projections in the January Monetary Policy Report (MPR) published today are subject to more-than-usual uncertainty because of the rapidly evolving policy landscape, particularly the threat of trade tariffs by the new administration in the United States. Since the scope and duration of a possible trade conflict are impossible to predict, this MPR provides a baseline forecast in the absence of new tariffs.

In the MPR projection, the global economy is expected to continue growing by about 3% over the next two years. Growth in the United States has been revised up, mainly due to stronger consumption. Growth in the euro area is likely to be subdued as the region copes with competitiveness pressures. In China, recent policy actions are boosting demand and supporting near-term growth, although structural challenges remain. Since October, financial conditions have diverged across countries. US bond yields have risen, supported by strong growth and more persistent inflation. In contrast, yields in Canada are down slightly. The Canadian dollar has depreciated materially against the US dollar, largely reflecting trade uncertainty and broader strength in the US currency. Oil prices have been volatile and in recent weeks have been about $5 higher than was assumed in the October MPR.

In Canada, past cuts to interest rates have started to boost the economy. The recent strengthening in both consumption and housing activity is expected to continue. However, business investment remains weak. The outlook for exports is being supported by new export capacity for oil and gas.

Canada’s labour market remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months, after lagging growth in the labour force for more than a year. Wage pressures, which have proven sticky, are showing some signs of easing.

The Bank forecasts GDP growth will strengthen in 2025. However, with slower population growth because of reduced immigration targets, both GDP and potential growth will be more moderate than was expected in October. Following growth of 1.3% in 2024, the Bank now projects GDP will grow by 1.8% in both 2025 and 2026, somewhat higher than potential growth. As a result, excess supply in the economy is gradually absorbed over the projection horizon.

CPI inflation remains close to 2%, with some volatility due to the temporary suspension of the GST/HST on some consumer products. Shelter price inflation is still elevated but it is easing gradually, as expected. A broad range of indicators, including surveys of inflation expectations and the distribution of price changes among components of the CPI, suggests that underlying inflation is close to 2%. The Bank forecasts CPI inflation will be around the 2% target over the next two years.

Setting aside threatened US tariffs, the upside and downside risks around the outlook are reasonably balanced. However, as discussed in the MPR, a protracted trade conflict would most likely lead to weaker GDP and higher prices in Canada.

With inflation around 2% and the economy in excess supply, Governing Council decided to reduce the policy rate a further 25 basis points to 3%. The cumulative reduction in the policy rate since last June is substantial. Lower interest rates are boosting household spending and, in the outlook published today, the economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.

Information note

The next scheduled date for announcing the overnight rate target is March 12, 2025. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on April 16, 2025.

Footnotes

1. Effective January 30, the deposit rate will be set at 5 basis points below the Bank’s policy interest rate to improve the effectiveness of monetary policy implementation. For more details, see the market notice published simultaneously with this press release.[←]
2. A market notice published simultaneously with this press release provides operational details.[←]

Read the January 29th, 2025 Monetary Report.

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Benefits of Working with an Independent Mortgage Professional

By Marci Deane • February 12, 2025

If you need a mortgage, working with an independent mortgage professional will save you money and provide you with better options than dealing with a single financial institution. And if that is the only sentence you read in this entire article, you already know all you need to know. However, if you’d like to dig a little deeper, here are some reasons that outline why working with an independent mortgage professional is in your best interest. The best mortgage is the one that costs you the least over the long term. An independent mortgage professional can help you achieve this. Mortgages aren’t created equally. Oftentimes slick marketing leads us to believe the lowest “sticker price” is the best value. So when it comes to mortgage financing, you might assume the mortgage with the lowest rate is the best option. This isn’t always the case. When considering a mortgage, your goal should be to find the mortgage that will cost you the least amount of money over the total length of the mortgage. There are many factors to consider, such as your specific financial situation, the rate, initial term length, fixed or variable rate structure, amortization, and the penalties incurred should you need to break your mortgage early; the fine print matters. An independent mortgage professional can walk through all these factors with you and will help you find the mortgage that best suits your needs. Sometimes taking a mortgage with a slightly higher rate can make sense if it gives you flexibility down the line or helps you avoid huge payout penalties. Working the numbers with an independent mortgage professional will save you money in the long run instead of just going with what a single lender is offering. Save time by letting an independent mortgage professional find the best mortgage product for you. Let's face it, getting a mortgage can be challenging enough on its own. Everyone’s financial situation is a little different and making sense of lender guidelines is a full-time job in itself. So instead of dealing with multiple lending institutions on your own, when you work with an independent mortgage professional, you submit a single mortgage application that is compared to the lending guidelines of various mortgage lenders. This will save you time as you don’t have to go from bank to bank to ensure you’re getting the best mortgage. Simply put, an independent mortgage professional works for you and has your best interest in mind, while a bank specialist works for the bank and has the bank's best interest in mind. It’s no secret that Canadian banks make a lot of money. It seems every quarter they turn billions of dollars in profit (despite the economic environment). They do this at the expense of their customers by charging as much interest as they can and structuring mortgages to their benefit. It’s all about the alignment of interest. Bank employees work for the bank; the bank pays them to make money for the bank. In contrast, independent mortgage professionals are provincially licensed to work for their clients and are paid a standardized placement or finder’s fee for matching borrowers with lenders. When you work with a single bank, you only have access to the products of that bank. When you work with an independent mortgage professional, you have access to all of the lenders that mortgage professionals have relationships with and all their products. Working with an independent mortgage professional will save you money, time, and provide you with better mortgage options. Plus, you have the added benefit of working with a licensed professional looking out for your best interest, providing you with the best possible advice. If you’d like to know more or to discuss mortgage financing, please connect anytime; it would be a pleasure to work with you.

How to Ensure a Smooth Home Purchase

By Marci Deane • February 5, 2025

Chances are, buying a home is one of the most important financial decisions you’ll make in your life. And as mortgage financing can be somewhat confusing at the best of times, to alleviate some of the stress and to ensure your home purchase goes as smoothly as possible, here are six very high-level steps you should follow. While it might seem like the best place to start the home buying process is to browse MLS on your phone and then contact a Realtor to go out and look at properties, it’s not. First, you’re going to want to work with a licensed independent mortgage professional. When you work with an independent mortgage professional, instead of working with a single bank, you’ll be working with someone who has your best interest in mind and can present you with mortgage options from several financial institutions. The second step in the home buying process is to put together a mortgage plan. Unless you have enough money in the bank to buy a home with cash, you’re going to need a mortgage. And as mortgage financing can be challenging and not so straightforward, the best time to start planning for a mortgage is right now. Don’t make another move until you discuss your financial situation with an independent mortgage professional. It’s never too early to start planning. As part of your mortgage plan, you’ll want to figure out what you can afford on paper, assess your credit score, run some financial scenarios, calculate mortgage payments, and have a clear picture of exactly how much money is required for a downpayment and closing costs. You’ll also be able to discuss which mortgage product is best for you, considering different mortgage terms, types, amortizations, and features. Now, what you qualify to borrow on paper doesn’t necessarily mean you can actually afford the payments in real life. You need to consider your lifestyle and what you spend your money on. Understanding your cash flow is the key. Make a budget to verify you can actually afford your proposed mortgage payments and that you have enough funds to close on the mortgage. No one wants to be house-poor or left scrambling to come up with funds to close at the last minute. If everything looks good at this point, the next step will be to get a preapproval in place. Now, a pre-approval is more than just typing some numbers into a form or online calculator; you need to complete a mortgage application and submit all the documents requested by your mortgage professional. Only proceed with looking at properties when you’ve been given the green light from your mortgage professional. When you’ve found a property to purchase, you’ll work very closely with your mortgage professional to arrange mortgage financing in a short period of time. This is where being prepared pays off. As you’ve already collected and submitted many documents upfront during the preapproval process, you should be set up for success. However, remain flexible and provide any additional documentation required by the lender to secure mortgage financing. Once you have firm lender approval and you’ve removed conditions on the purchase agreement, don’t change anything about your financial situation until you have the keys. Don’t quit your job, don’t take out a new loan, or don’t make a large withdrawal from your bank account. Put your life into a holding pattern until you take possession of your new home. So there you have it, six steps to ensuring a smooth home purchase: Work with an independent mortgage professional. Put together a mortgage plan. Figure out what you can actually afford. Get a pre-approval. Provide the necessary documentation. Don’t change anything about your financial situation until you take possession. If you’d like to discuss your personal financial situation and find the best mortgage product for you, let’s work together. We can figure out a plan to buy a home as stress-free as possible. Please connect anytime; it would be a pleasure to work with you.

Bank of Canada Kicks Off 2025 with a Rate Cut and Balance Sheet Normalization

By Marci Deane • January 30, 2025

The Bank of Canada has lowered its overnight rate by 25 basis points—the sixth cut since June last year. It also plans to end quantitative tightening and normalize its balance sheet. This brings the BOC rate to 3.00% and we expect lenders to cut their Prime Lending rate to 5.20%. This is all good news and will help variable rate mortgage holders. However, the Bank warns of "more-than-usual uncertainty," especially with potential U.S. trade tariffs on the horizon. To say that predictions about future rate trajectory are tricky is quite the understatement at this point. Below is a summary of all the factors impacting the Canadian Economy, the Bank of Canada and interest rates right now. Canadian Economy & Housing Lower rates are boosting the economy, with consumer spending and housing activity picking up. Business investment remains weak. Exports should benefit from new oil and gas capacity. Inflation Outlook CPI inflation is near 2%, though temporarily affected by the GST/HST suspension on some goods. Housing costs are still high but gradually easing. Broad indicators suggest underlying inflation is very close to the 2% target. The Bank expects inflation to remain near 2% over the next two years. Labour Market Unemployment sits at 6.7%, signaling a soft labour market. Job growth has picked up after lagging behind workforce expansion. Wage pressures are easing, but progress has been slow. Global Economy, Bond Yields & Canadian Dollar Global GDP is expected to grow 3% annually over the next two years. U.S. growth is stronger than expected, while Europe lags. China’s economy is stabilizing after recent policy support. U.S. bond yields have risen, but Canadian yields are down slightly. The Canadian dollar has weakened against the U.S. dollar due to trade uncertainty. Oil prices have been volatile, recently settling about $5 higher than October projections. Other Key Announcements The Bank will complete balance sheet normalization and resume asset purchases in March 2025. With inflation near 2% and the economy in excess supply, the Bank deemed a rate cut necessary. The impact of rate cuts since June has been "substantial," fueling household spending and gradual economic strengthening. Outlook from the BOC today: The Bank projects 1.8% GDP growth for both 2025 and 2026. Lower immigration targets will slow population growth, moderating overall economic expansion. The risks in the outlook are "reasonably balanced" unless U.S. trade tensions escalate, which could weaken GDP and push prices higher. The Bank reaffirmed its commitment to price stability. Bottom line: The Bank is cutting rates to support growth, but uncertainties—especially trade risks—loom large. So, what to do? Variable rate or Fixed rate? The jury is out on this for the moment but less risk averse borrowers may want to consider a Variable if they believe recessionary pressures will push rates down. The counter argument to this is that Tariffs could cause inflation and thus, push the BOC to increase rates. Given this chance, risk averse borrowers might therefore prefer to “set it and forget it” with a fixed rate. It comes down to a very personal decision and analyzing the financial position and future goals for each borrower. Please reach out to review your personal plans and we can help you weigh the risks based on your personal financial situation.