Bank of Canada cuts to 3% as tariff threat clouds the outlook

On January 29, 2025, the Bank of Canada cut its target for the overnight rate by 0.25 percentage points to 3%, with the Bank Rate at 3.25% and the deposit rate at 2.95%. It also announced the end of quantitative tightening.

Bank of Canada policy rate, %

What the Bank said

• Past rate cuts have started to boost the economy, and stronger consumption and housing activity are expected to continue.
• Unemployment was 6.7% in December.
• GDP grew 1.3% in 2024 and is projected to grow 1.8% in both 2025 and 2026.
• Shelter inflation is still elevated but easing gradually.
• The forecast assumes no new tariffs. A protracted trade conflict would likely mean weaker growth and higher prices.

What it means for Calgary

Rates are now 2 points below their 5% peak. That supports demand going into spring, but the tariff threat matters for Alberta’s export economy and could weigh on confidence. The next decision is on March 12, 2025.

Compared with December

In December, the Bank cut by 0.50 points to 3.25%, its second half-point cut in a row. In January it slowed to a 0.25-point cut, taking the rate to 3%. The Bank said the cumulative reduction since last June is substantial. It also announced the end of quantitative tightening: asset purchases will restart gradually in early March so that its balance sheet stabilizes and then grows modestly, in line with the economy.

The tariff question

The Bank said its projections face more-than-usual uncertainty because of the threat of US trade tariffs. Its forecast assumes no new tariffs; a protracted trade conflict would most likely lead to weaker GDP and higher prices in Canada. The Canadian dollar has depreciated materially against the US dollar, and oil prices in recent weeks were about $5 higher than assumed in October.

What it means for Calgary buyers

CREB’s 2025 forecast expects over 26,000 sales this year and price growth of about 3%, with easing lending rates among the factors supporting demand. A 3% policy rate is 2 points below the 5% it held until June. Variable-rate borrowers benefit directly. Fixed rates depend more on bond yields, which the Bank said were down slightly in Canada since October.

What it means for sellers

Calgary ended 2024 with 2,989 homes for sale, well above a year earlier. Lower rates bring buyers back, but sellers should expect more competition than in recent springs, and CREB has warned that tariffs could affect activity.

Local angle

CREB’s forecast says that if broad 25% tariffs are imposed on all exports, Alberta’s economy could enter a recession, while an energy exemption or short-lived tariffs could mean a stronger economy. That makes trade news as important for Calgary’s housing market this spring as the rate itself.

Practical takeaways

If you plan to buy this spring, ask your lender about holding a pre-approval rate. Stress-test your budget in case rates or your job situation change. The next decision is on March 12, 2025.

The economy and inflation

Following growth of 1.3% in 2024, the Bank projects GDP growth of 1.8% in both 2025 and 2026. Job growth has strengthened in recent months, and wage pressures are showing some signs of easing. CPI inflation remains close to 2%, and shelter price inflation is still elevated but easing gradually. Business investment remains weak, but the Bank said the outlook for exports is supported by new export capacity for oil and gas, which matters for Alberta.

The Bank said that, setting aside the threatened US tariffs, the upside and downside risks around its outlook are reasonably balanced, and that underlying inflation, measured by a broad range of indicators, is close to 2%.