By Penelope Graham on March 12, 2025
Estimated reading time: 7 minutes

Making sense of the Bank of Canada interest rate decision on March 12, 2025

By Penelope Graham on March 12, 2025
Estimated reading time: 7 minutes

How the BoC’s seventh consecutive rate cut will impact Canadians, and what to know whether you’re a borrower, investor or saver.

Photo by Thomas K from Pexels

Today marks the seventh cut in a row for Canada’s benchmark borrowing rate, as our central bank does what it can to pad against tariff threats and possible recession.

The Bank of Canada (BoC) lowered its overnight lending rate—which lenders use to set their prime rates, and, by extension, variable mortgage rates—by another quarter of a percentage, bringing it to 2.75%. This rate now sits a full 225 basis points lower than when the BoC first kicked off its rate cutting cycle inJune 2024. As a result, the prime rate at most Canadian lenders will lower to 4.95%.

The main impetus behind today’s rate cut is the economic fallout from U.S. tariff threats, which have been ongoing—and rapidly evolving—since the start of the year. After initially vowing to implement blanket 25% tariffs on all Canadian imports to the States, with a 10% tariff on energy, on February 4, U.S. President Donald Trump delayed their implementation to March 4, and again to an even later April 2 deadline. (Read my take on how 25% U.S. tariffs could impact Canadian mortgage rates.)

However, while not currently in force, the tariffs have already caused cracks in the Canadian economy, preventing businesses from investing and hiring, and dampening consumer spending. That was enough to pass on this most recent rate cut, stated the BoC, despite other economic data that shows strengthening GDP and inflation.

“While economic growth has come in stronger than expected, the pervasive uncertainty created by continuously changing tariff policy is restraining consumers’ spending intentions and businesses’ plans to hire and invest. Against this background, and with inflation close to the 2% target, the Governing Council decided to reduce the policy rate by a further 25 basis points,” states the BoC’s release.

While the rate outlook remains extremely uncertain, it’s largely expected that the BoC will need to slash its benchmark a few more times, as long as tariffs persist. However, that will put the central bank in the sticky spot of stimulating the economy while sacrificing progress on inflation, as tariffs and accommodative monetary policy push prices higher. (Remember the 10 rate hikes that occurred between March 2022 and July 2023?)

In a special edition publication today, the central bank breaks down how the economic damage has evolved thus far. Titled “How Canadian businesses and households are reacting to the trade conflict” and based on consultations and surveys, the report shows Canadians are increasingly concerned about their job security. That is especially true in industries impacted by trade. It also reveals that Canadians are worried about overall financial health, and they plan to rein in spending. Credit is starting to crunch up for entrepreneurs, while the cost of business is already on the rise, such as importing capital goods, equipment, and machinery. Roughly half Canadian businesses expect they’ll need to raise prices should tariffs come to fruition, and short-term inflation expectations are also increasing.

Table of Contents

The impact on Canadians with a mortgage
The impact on variable-rate mortgages
The impact on fixed-rate mortgages
What does the rate cut mean if you’re an investor
What does the rate cut mean for your savings?

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What does the BoC rate announcement mean to you?

Aside from squeezing your wallet, how will the current economic climate impact you? Let’s take a step back and break down the implications of today’s rate cut for borrowers, savers and investors.

The impact on Canadians with a mortgage

The BoC announcement is of interest for those with a mortgage.

The impact on variable-rate mortgages

Really, the only ones benefiting from Trump’s game of tariff chicken are borrowers, especially those with variable-rate mortgages. As a result of this most recent rate cut, variable mortgage rates and payments will immediately decrease. This is because variable mortgage rate pricing is set based on a lender’s spread to prime; plus or minus a percentage from the prime rate. So any time the BoC tweaks rates, variable mortgages follow suit.

Those with adjustable-rate variable mortgages will see their monthly payment lower immediately, while those on a fixed payment schedule will see less of their payment service interest, and more go toward paying down their principal mortgage amount.

The impact on fixed-rate mortgages

Fixed mortgage rates take pricing cues from the bond market rather than the Bank of Canada. But the central bank’s influence, and the tariff madness, has been keenly felt by bond investors. On March 3, the day before Trump’s tariffs came briefly into effect,– Canada’s five-year government bond yield dropped to 2.5%, a low not seen since July 2022.

That drop gave lenders the leeway to cut their fixed mortgage rates, with today’s most competitive insured five-year fixed term now as low as 3.89%. While yields have since ticked back up (setting around 2.6% post-announcement), there’s still room for fixed rates to decrease or remain at current discounts. However, given how the market can move rapidly based on whatever Trump does or says next, yields could either trend right back up or drop further; either scenario is plausible right now.

Check out the rates below to see the current status of mortgage rates in Canada.

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What does this mean for the housing market?

The latest national real estate stats don’t come out until next week, but regional real estate boards have offered a glimpse of how tariff fears are impacting sales. It’s not pretty.

According to the February 2025 report from the Toronto Regional Real Estate Association (TRREB), home sales in Toronto plunged by nearly 28% year over year last month, along with rising inventory and cooling prices. It’s hardly surprising. With the threat of job losses and a recession looming, most buyers aren’t in the mood to make an enormous financial commitment.

This rate cut will improve affordability modestly, which could prompt some sidelined buyers back into the fray, but it’s unlikely that activity will truly pick up until tariff fears have passed.

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What does the rate cut mean if you’re an investor?

Tariffs have spelled nothing but drama for the stock market, which is currently operating on “extreme fear”, according to CNN.

The top three American major indexes have tumbled on headlines that Trump seems increasingly tolerant of market fallout and that he won’t rule out the possibility of a U.S. recession. The Dow dropped by 700 points on Tuesday before rebounding slightly, closing at 1.14%, while the S&P fell 0.76% and the Nasdaq Composite by 0.18%.

All three have rebounded slightly today, along with the TSX, which rose 15.1 points in the hours following the rate announcement.

However, as CNN’s John Towfighi reports, markets are “sick and tired” of the chaos, draining investor confidence. And, as the Globe and Mail’s personal finance columnist Rob Carrick put it, those who want to tap into their nest eggs within the next five years are wise to yank it out of the stock market now, and to focus on more safe-have and passive income investment types.

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What does the rate cut mean for your savings?

In general, rate cuts don’t spell good news for savers. Their interest rates are also largely dependent on the prime rate, meaning returns erode each time the BoC lowers its benchmark.

This most recent cut will further lower the rate of return for those with high-interest savings accounts (HISAs) and guaranteed investment certificates (GICs). However, given more cuts are anticipated, it could be smart to score a solid rate now, before they decline further. And given all the current market volatility, a high-interest savings account or GIC can provide a small slice of peace of mind.

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This article was created by a MoneySense content partner.

This is an unpaid article that contains useful and relevant information. It was written by a content partner based on its expertise and edited by MoneySense.

About Penelope Graham

As director of content at Ratehub.ca, Penelope has over a decade of experience covering real estate, mortgage and personal finance. Her commentary is featured on BNN Bloomberg, CBC and The Globe and Mail.