Canada Cut Rates to 3%, but Trump's Tariffs Changed the Mood

The Bank of Canada cut interest rates again at its first meeting of 2025, trimming 25 basis points and bringing the overnight rate to 3%. On any normal day that would be a cheerful headline. This is not a normal day.

I'm Moe Asgarian, senior real estate broker in Toronto and ranked #47 worldwide at RE/MAX. There is a serious worry hanging over this rate cut, and its name is tariffs. Let me explain what happened in that meeting and what it means for you.

The rate cut is real, and variable borrowers win

Loans got cheaper, so congratulations to anyone holding a variable rate mortgage. I wish I could stop there. The Bank is doing its job, lowering rates to support the economy. But at the same moment, the U.S. announced tariffs on many Canadian imports, and the number is 25 percent. That is the shadow over an otherwise good day.

Why nobody is celebrating: the tariffs

Everyone has moved past the rate cut and fixed their attention on tariffs. The Bank used the word tariff four times in its statement. Almost every reporter at the press conference asked about tariffs. If these tariffs go into effect and stay in place for a long stretch, Canada faces a serious economic challenge. Picture a big family that has relied on one income source for years and is about to lose a large part of it. That is the situation the country could be in.

Print money, or not

One tool the Bank has in a crisis like this is to print money. Reporters asked the governor about it more than once, and he dodged. He did not say yes, we will do this, but his answer was not a hard no either. In other words, we could wake up one day and find that decision has been made.

Recession or inflation, the choice the Bank faces

What the Bank is really doing is weighing two currents and deciding which does less damage. On one side is recession. On the other is inflation. In this meeting the Bank said it will watch carefully how much a sluggish economy is hurting, and separately how much inflation is doing to the economy. Both cause harm. The job is to move toward the side that hurts less. Honestly, no one yet knows which one Canada will choose. The governor stressed this too, asking whether the effect of recession on inflation will be bigger, or the effect of tariff driven price increases.

Should you go variable right now?

So what do you do in this market? First piece of advice: do not panic, and keep your calm. This does not show its effect overnight. It takes a little time to see what the central bank does, what the federal government does, and what help they put in place for people. Do not make a fast, emotional decision. Second, and short term: in general, if you can go with a variable rate mortgage, that looks like the right call. I do not mean it is better for 100 percent of people, but as of early February 2025, with these conditions, reason points toward a variable rate, because the downward path of rates is very likely to continue unless something special happens in between.

Layers of uncertainty, and how to decide

The main point is that Canada is sitting in several layers of doubt at once. There is a political layer: the prime minister stepped down from the party leadership but is still prime minister, while Parliament is not sitting. Trump is imposing tariffs on one side, and on the other there is not even a session in Parliament. Inside the governing party there is real division; the former finance minister who was deputy prime minister resigned, and the Liberals plan a leadership vote before we likely head into a national election. Then there is monetary policy on top of it all. When uncertainty stacks up in this many layers, it matters to know the main analysis, follow the important news, and for decisions like buying, selling, or investing, talk to people who specialize in this. My team and I look at Toronto and GTA housing data every day, and over the years we have helped clients make good decisions for themselves and their families. Fill out the form at the bottom of the page or book a free consultation, and let's talk it through together. Stay well and take care.