Bank of Canada/CBC News, January 30 2025
On Wednesday, January 30, 2025, the Bank of Canada made a significant move by cutting its interest rate by a quarter point to 3 percent. In response, major Canadian financial institutions swiftly followed suit and reduced their prime lending rates.
Royal Bank of Canada, Toronto Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Montreal, National Bank of Canada, and Desjardins Group announced that they would decrease their prime rate by 25 basis points. The prime rate dropped from 5.45 percent to 5.20 percent, effective immediately after the central bank’s decision.
This reduction in prime rates is expected to bring relief to variable rate mortgage borrowers. According to calculations by ratehub.ca, a homeowner who put a 10 percent down payment on an average priced home in Canada, which is valued at $676,640 as of December 2024, would pay around $87 less per month with a five – year variable rate mortgage.
The Bank of Canada’s decision to cut the interest rate comes as the country faces various economic challenges. Although the inflation rate has been at the 2% target level since August 2024 and there has been a slight recovery in family spending, the governor of the Bank of Canada, Tiff Macklem, has warned about the potential negative impacts of the trade conflict with the United States. The conflict could both suppress economic growth and exacerbate inflation pressures.
In addition to the rate cut, the Bank of Canada also announced the end of quantitative tightening (QT) and adjusted the deposit rate to be 5 basis points lower than the policy rate. These measures aim to provide support to the Canadian economy. However, with external trade risks still looming, the future economic prospects of Canada remain uncertain.
The adjustment of prime rates by Canadian banks is a direct response to the central bank’s monetary policy change. It will have a significant impact on borrowing costs for various types of loans, including variable – rate mortgages and lines of credit. As the situation evolves, the Bank of Canada’s future monetary policy decisions will continue to be closely watched by the market and have a profound influence on the Canadian economy.