Bank Of Canada Cuts Interest Rate To 2.75% Amid U.S. Tariff Turmoil: What It Means For Canadians

Bank of Canada Slashes Interest Rate Again

The Bank of Canada has lowered its key interest rate by 25 basis points, bringing it down to 2.75%—marking the seventh consecutive rate cut in response to increasing economic uncertainty. The central bank cited ongoing trade tensions with the United States as a primary reason for the decision.

Why the Interest Rate Cut Happened

Impact of U.S. Tariff Uncertainty

Bank of Canada Governor Tiff Macklem warned that the continuously shifting U.S. tariff threats have caused widespread uncertainty among businesses and consumers alike.

“In recent months, the pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence. This is restraining household spending intentions and businesses’ plans to hire and invest,” Macklem stated in Ottawa.

The central bank is attempting to counteract the economic slowdown by making borrowing cheaper for individuals and businesses.

Projected Economic Impact

The Bank of Canada estimates that if the U.S.-Canada trade dispute escalates, it could lead to:

A 3% drop in Canada’s GDP over the next two years.
A 12% decline in business investment.
An 8.5% decrease in exports after the first year.

Macklem emphasized that even without immediate trade restrictions, uncertainty alone is already affecting economic activity.

How Businesses and Consumers Are Reacting

The Bank of Canada also released the findings of surveys conducted between January 29 and February 28, 2025, showing:

72% of consumers expect higher costs due to tariffs.
47% of businesses share the same concern.
48% of businesses plan to reduce investment spending.
40% of businesses intend to cut back on hiring.
Only 2% of businesses anticipate increasing their investment.

These findings highlight the economic uncertainty and cautious sentiment in the market.

What This Means for Canadians

For Borrowers and Homeowners

With interest rates now at 2.75%, Canadians with variable-rate mortgages, personal loans, and lines of credit may see lower monthly payments. However, fixed-rate mortgage holders may not experience immediate relief.

For Savers and Investors

On the downside, lower interest rates mean reduced returns on savings accounts and GICs, potentially prompting investors to seek higher-yield options like stocks and real estate.

Will the Bank of Canada Cut Rates Further?

The Bank of Canada has not ruled out additional rate cuts, especially if the U.S. trade war worsens. Some economists predict that if tensions persist, the overnight rate could fall below 2% by early 2026.

Conclusion

As Canada navigates growing economic uncertainty, the Bank of Canada’s rate cut is aimed at mitigating damage caused by U.S. tariff threats. While it brings relief for borrowers, it also signals potential economic challenges ahead. Canadians should remain vigilant and consider adjusting their financial strategies accordingly.