The Bank of Canada dropped its key interest rate to 2.75% on March 12, 2025, marking its seventh cut since June 2024. That’s a 25-basis-point nudge down from 3%, and it’s got everyone—homeowners, savers, economists—parsing what it means. With the economy humming along until recently and a trade war with the U.S. heating up, this latest move feels like a tightrope walk.
How We Got Here
Rewind to July 2023: the Bank of Canada’s overnight rate hit 5%, a level not seen since 2001. Inflation was the bogeyman then, and the bank wasn’t messing around. Fast forward to June 2024, when the Bank of Canada interest rate cut began—cuts started rolling in as inflation settled near the 2% sweet spot and growth showed cracks.. By March 2025, we’re at 2.75%, down 225 basis points in nine months. Here’s the timeline:
| Date | Rate (%) | Change (bps) |
|---|---|---|
| July 12, 2023 | 5.00 | – |
| June 4, 2024 | 4.75 | -25 |
| July 24, 2024 | 4.50 | -25 |
| September 4, 2024 | 4.25 | -25 |
| October 23, 2024 | 3.25 | -50 |
| December 11, 2024 | 3.00 | -25 |
| January 29, 2025 | 3.00 | 0 |
| March 12, 2025 | 2.75 | -25 |
That 50-point drop in October? A big signal the bank was worried. Now, it’s back to quarter-point tweaks, but the stakes feel higher.
Why Now? Growth, Jobs, and a Trade Mess
So why pull the trigger again? Two words: trade war. Oh, and a decent-but-wobbly economy. Governor Tiff Macklem laid it out plain during his March 12 press conference—Canada’s been riding a wave of solid growth, but storm clouds are gathering.
The Good Stuff
Late 2024 was a bright spot. GDP climbed 2.6% in Q4, beating the bank’s own forecasts from January’s Monetary Policy Report. Spending picked up, housing got a jolt—those earlier cuts were doing their job. Inflation’s been playing nice too, hovering around 2% since mid-2024. Jobs were another win: unemployment dipped to 6.6% by January 2025, with hiring strong through the fall. But then February hit, and job growth flatlined. A warning sign? Maybe.
The Trade War Wildcard
Here’s where it gets messy. The U.S., which takes about 75% of Canada’s exports, is throwing punches. Back on November 25, 2024, Donald Trump, fresh off his election win, promised 25% tariffs on Canadian and Mexican goods, plus 10% on China. By March 12, 2025, he made good on part of it—25% tariffs on Canadian steel and aluminum kicked in. Canada fired back the next day with C$29.8 billion ($20.68 billion USD) in tariffs on U.S. stuff. Tit for tat.
Macklem didn’t mince words: “The pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence.” Companies are holding off on big investments; shoppers are getting jittery. Even with that Q4 growth, the bank’s worried the rug’s about to get pulled.
What the Bank Said
The official line from March 12? “The Bank of Canada today reduced its target for the overnight rate to 2.75 per cent, with the bank rate at three per cent and the deposit rate at 2.70 per cent.” They pointed to the boost from past cuts—think more spending, hotter housing—but flagged “warning signs” in the job market and the trade mess looming large. Macklem added, “Depending on the extent and duration of new U.S. tariffs, the economic impact could be severe.” Translation: we’re not out of the woods, and the bank’s keeping its options open.
The Ripple Effect
Big banks didn’t waste time. RBC, TD, BMO, Scotiabank, and CIBC all slashed their prime rates from 5.20% to 4.95% on March 13. That’s the number variable-rate mortgages and lines of credit hang on, so borrowers caught a break. Here’s the rundown:
| Bank | Old Prime (%) | New Prime (%) | Effective Date |
|---|---|---|---|
| RBC | 5.20 | 4.95 | March 13, 2025 |
| TD | 5.20 | 4.95 | March 13, 2025 |
| BMO | 5.20 | 4.95 | March 13, 2025 |
| Scotiabank | 5.20 | 4.95 | March 13, 2025 |
| CIBC | 5.20 | 4.95 | March 13, 2025 |
Fixed-rate mortgages? Trickier. They’re tied to bond yields, which ticked up after the announcement. No instant win there.
Who Wins, Who Loses
The Upside
- Borrowers: If you’ve got a $100,000 variable-rate mortgage, your monthly payment just dropped about $15. Small, but it adds up. Renewing soon? Lower rates might ease the sting.
- Homeowners: After years of brutal borrowing costs, this is a lifeline.
The Downside
- Savers: Tough luck. Savings accounts and GICs are taking a hit. “The Bank of Canada is penalizing people doing exactly the right thing with their money,” The Globe and Mail griped on March 13.
- Housing: Don’t expect a boom. Kingsley Ma from Re/Max Canada put it blunt on March 13: “If you lose your job, you won’t be able to pay your mortgage, so it doesn’t matter if the interest rates are lower.” Trade war jitters could kill the vibe.
The Big Picture
Tariffs might jack up prices—think imported goods costing more—which could nudge inflation past 2%. Macklem called it “a challenging mix” of weak growth and high prices if things drag on. The latest Bank of Canada interest rate cut might not cushion the blow if trade tensions escalate further. Buckle up.
What’s Next? Expert Takes
Economists are all over the map:
- RBC’s Claire Fan: She’s betting on 2.25% by mid-2025—two or three more cuts. “Absent trade risks, the Bank of Canada likely would have held rates,” she wrote March 13.
- Capital Economics’ Stephen Brown: He’s eyeing 2% by July, three straight cuts, unless tariffs spike inflation and force a rethink.
- Oxford Economics: They say 2.75% might stick if Trump slaps on broader 25% tariffs, citing inflation worries.
Markets? They’re pricing in a 45% shot at another cut April 16, with two or three more by December, maybe hitting 2% or 2.25%.
How’s the U.S. Playing It?
Across the border, the Federal Reserve’s expected to sit tight at 4.25%-4.50% during its March 18-19 meeting. Traders see cuts starting in June, three quarter-pointers. Fed Chair Jerome Powell’s in no rush, watching Trump’s tariff game unfold.
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