Benchmark Rate Now Sits at 3.25%
In a widely expected move, the Bank of Canada has continued the downward trajectory with a second consecutive half-point cut to its benchmark interest rate, which now sits at 3.25%. This marks the fifth interest rate cut in a row, despite s slight uptick in inflation, which rose to two per cent in October, up from 1.6 per cent in September. Inflation still sits at the Bank’s two-per-cent target, however the Bank expressed concerns over the state of the economy.
Interest Rates and the Canadian Housing Market
The 2025 housing market is on the rebound, according to the latest outlook from RE/MAX Canada. Canadians are looking ahead to 2025 with a more positive outlook on the housing market, initially prompted by a series of interest rate cuts in the latter part of 2024, and with further cuts expected in 2025. With buyers expected to come off the sidelines, sellers have already started listing more properties for sale. The national average residential price is expected to increase by five per cent next year, with sales anticipated to increase in 33 or 37 major markets surveyed, with increases in activity of up to 25 per cent.
While affordability challenges persist, the sequential interest rate cuts and changes to the mortgage stress test are a much-needed reprieve for those looking to get into the market. The current environment is more encouraging than it has been in the past few years, especially for first-time homebuyers. However, a boost in sales, coupled with limited inventory, almost always leads to rising prices, which is the trend we’re expecting to see materialize in virtually all Canadian housing markets.
Bank of Canada’s 2025 Policy Interest Rate Announcement Schedule
Bank of Canada announces its decision for the overnight rate target eight times a year, typically on a Wednesday. The schedule for 2025 is as follows:
- Wednesday, January 29
- Wednesday, March 12
- Wednesday, April 16
- Wednesday, June 4
- Wednesday, July 30
- Wednesday, September 17
- Wednesday, October 29
- Wednesday, December 10
Read the full interest rate announcement below:
The Bank of Canada today reduced its target for the overnight rate to 3¼%, with the Bank Rate at 3½% and the deposit rate at 3¼%. The Bank is continuing its policy of balance sheet normalization.
The global economy is evolving largely as expected in the Bank’s October Monetary Policy Report (MPR). In the United States, the economy continues to show broad-based strength, with robust consumption and a solid labour market. US inflation has been holding steady, with some price pressures persisting. In the euro area, recent indicators point to weaker growth. In China, recent policy actions combined with strong exports are supporting growth, but household spending remains subdued. Global financial conditions have eased and the Canadian dollar has depreciated in the face of broad-based strength in the US dollar.
In Canada, the economy grew by 1% in the third quarter, somewhat below the Bank’s October projection, and the fourth quarter also looks weaker than projected. Third-quarter GDP growth was pulled down by business investment, inventories and exports. In contrast, consumer spending and housing activity both picked up, suggesting lower interest rates are beginning to boost household spending. Historical revisions to the National Accounts have increased the level of GDP over the past three years, largely reflecting higher investment and consumption. The unemployment rate rose to 6.8% in November as employment continued to grow more slowly than the labour force. Wage growth showed some signs of easing, but remains elevated relative to productivity.
A number of policy measures have been announced that will affect the outlook for near-term growth and inflation in Canada. Reductions in targeted immigration levels suggest GDP growth next year will be below the Bank’s October forecast. The effects on inflation will likely be more muted, given that lower immigration dampens both demand and supply. Other federal and provincial policies—including a temporary suspension of the GST on some consumer products, one-time payments to individuals, and changes to mortgage rules—will affect the dynamics of demand and inflation. The Bank will look through effects that are temporary and focus on underlying trends to guide its policy decisions.
In addition, the possibility the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.
CPI inflation has been about 2% since the summer, and is expected to average close to the 2% target over the next couple of years. Since October, the upward pressure on inflation from shelter and the downward pressure from goods prices have both moderated as expected. Looking ahead, the GST holiday will temporarily lower inflation but that will be unwound once the GST break ends. Measures of core inflation will help us assess the trend in CPI inflation.
With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range. Governing Council has reduced the policy rate substantially since June. Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time. Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook. The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
