Bank of Canada Expected to Cut Interest Rate: What It Means for Your Wallet

The Bank of Canada is expected to lower its key interest rate tomorrow (March 12, 2025), bringing it down from 3% to 2.75%. This would mark the seventh consecutive rate cut since the central bank began lowering rates last year. While this might sound like boring financial news, it actually has real impacts on your everyday finances - from mortgages to savings accounts and beyond.

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What's Happening?

The Bank of Canada sets what's called the "overnight rate," which is basically the foundation for all other interest rates in the country. When this rate changes, it affects the interest rates you pay on loans and receive on savings.

Tomorrow's expected 0.25% cut would continue a trend of gradually lowering interest rates. According to economists from major banks like TD and BMO, this cut is almost certain to happen, with TD noting there's now a "90% chance" of this reduction34.

Why Is This Happening?

The main reason for this expected rate cut is uncertainty around trade with the United States. President Trump has threatened to impose 25% tariffs on Canadian goods, and separate tariffs on steel and aluminum are set to go into effect on March 12 (the same day as the interest rate announcement)45.

These potential trade issues could hurt Canada's economy, so the Bank of Canada is trying to provide some support by making borrowing cheaper. As TD Economist Marc Ercolao explained, this rate cut would be like "insurance against a trade war escalation"4.

How This Affects Your Mortgage

If you have a variable-rate mortgage: You'll likely see your interest rate drop soon after the announcement. This means your monthly payments could decrease slightly, putting a bit more money in your pocket each month.

If you have a fixed-rate mortgage: You won't see an immediate change in your payments. However, if your mortgage is coming up for renewal soon, you might be able to secure a lower rate than what was available a few months ago.

If you're house hunting: Mortgage rates may become slightly more affordable, potentially increasing your buying power. However, the difference from a 0.25% cut will be modest - on a $400,000 mortgage, it might save you about $50-60 per month.

Impact on Other Loans

Credit cards: Unfortunately, credit card rates rarely move much with Bank of Canada changes, as they're already set quite high.

Lines of credit: If you have a home equity line of credit (HELOC) or personal line of credit, you'll likely see the interest rate drop by 0.25%, making your borrowing slightly cheaper.

Car loans and personal loans: New loans may be offered at slightly lower rates, but existing fixed-rate loans won't change.

What About Your Savings?

There's a downside to interest rate cuts - they typically mean lower returns on savings accounts and guaranteed investment certificates (GICs).

Savings accounts: Banks will likely reduce their interest rates on savings accounts, meaning you'll earn less on your deposits.

GICs: If you're planning to buy a GIC, you might want to lock in current rates before they potentially drop further. According to forecasts from TD and BMO, rates could fall to 2.25% or even 2.0% by the middle of this year34.

Looking Ahead: More Cuts Coming?

This likely won't be the last rate cut of 2025. Economists are predicting several more reductions throughout the year:

• TD Economics forecasts the rate will drop to 2.25% by the second quarter and stay there until year-end4.

• BMO is even more aggressive, predicting the rate will fall to 2.0% by July, with potential for further cuts depending on inflation4.

These predictions suggest mortgage rates and other borrowing costs could continue to decrease throughout 2025.

How to Take Advantage of This News

For Homeowners:

1. Consider refinancing if you're in a high-rate mortgage and the penalties aren't too steep.

2. Maintain your current payment amount even if your rate drops - this will help you pay down principal faster.

3. Look into locking in a fixed rate if you believe rates have bottomed out and might rise again in the future.

For Home Buyers:

1. Get pre-approved now to understand your buying power.

2. Consider variable-rate mortgages if you believe rates will continue to fall.

3. Don't rush to buy just because of rates - the housing market has many factors beyond interest rates.

For Savers:

1. Lock in higher GIC rates now before they potentially drop further.

2. Consider slightly longer terms for GICs to secure current rates.

3. Look into other investment options that might offer better returns than savings accounts in a falling rate environment.

For Investors:

1. Watch for potential stock market reactions - lower rates can sometimes boost stock prices.

2. Consider dividend-paying stocks as an alternative to lower-yielding savings products.

3. Be cautious about the broader economic picture - rate cuts are happening partly because of economic concerns.

The Bottom Line

Tomorrow's expected interest rate cut is good news if you're borrowing money but less exciting if you're saving. While a 0.25% change might seem small, these cuts add up over time and affect nearly every aspect of your financial life.

The smartest approach is to review your current financial situation - mortgages, loans, savings, and investments - and make adjustments that take advantage of the changing rate environment. And keep an eye out for further cuts later this year, as economists are predicting the downward trend will continue.

Remember that while lower interest rates can provide some financial relief, they're also a sign that the economy faces challenges. Maintaining healthy financial habits - like building emergency savings and avoiding unnecessary debt - remains important regardless of what the Bank of Canada decides.