Here’s what to expect from the Bank of Canada’s first interest rate update of 2025

Canadians are awaiting the first interest rate update of the year, and all eyes are on the Bank of Canada (BoC).

The final major rate cut of 2024 came on December 11, when the BoC lowered its key interest rate from 3.75 per cent to 3.25 per cent.

Experts had predicted a 0.25 per cent interest rate cut, but that changed after Canada’s unemployment rate rose to 6.8 per cent — a nearly eight-year high if you exclude the peak pandemic years of 2020 and 2021.

The next BoC announcement is scheduled for January 29. It will include a rate update, monetary policy report, and commentary.

Last year, Penelope Graham, a mortgage expert at Ratehub.ca, told us that 2025 was looking like “another wild economic ride.”

“A second Trump presidential term – and potential trade war – has injected uncertainty into any forward-looking analysis, with deep implications for our central bank,” she observed. “Simply put, the only constant Canadians can count on this year is upheaval – but there are a few mortgage trends shaping up from the ether.”

Now that the “potential trade war” seems increasingly likely, and the latest Consumer Price Index (CPI) shows inflation slowing to 1.8 per cent, we contacted Graham again for her insights.

What to expect on January 29

After a flurry of big and small interest rate cuts last year, experts expected a slowdown in the form of a hold. However, given the December 24 CPI, another cut may be on the cards.

“Despite previous signals that the Bank will slow the cadence and size of rate cuts, tariff uncertainty, combined with the latest below-target inflation reading, should prompt another quarter-point rate cut in the upcoming January rate announcement,” Graham said.

“The central bank will be keen to build up a buffer against economic shocks and keep the economy pre-emptively stimulated in the face of growing recession threats.”

BoC announcements alternate between pure interest rate updates and rate updates in conjunction with monetary policy reports and commentary. The one on Wednesday will be the detailed kind.

“The language used in the Bank’s announcement may offer hints as to whether the Governing Council still believes the approach to rate cuts will be moderate, should tariff threats, and their resulting recessionary pressures, actually come to fruition,” Graham shared.

U.S. President Donald Trump says new tariffs could be imposed on Canadian products starting in February. His threats have caused the Canadian bond market to become more volatile recently.

“Canada’s five-year yield has swung from a high of 3.31 per cent on November 21, down to 2.97 per cent this week, which may put downward pressure on fixed mortgage rates. However, given how quickly investor sentiment can change, rate pricing could go in any direction,” said Graham.

“Anyone shopping for a mortgage right now, whether coming up for renewal or purchase, should get a pre-approval and lock in with a rate hold to guarantee access to the lowest rates, even if fixed rates rise, or variable spreads to prime shrink in the coming weeks.”

How mortgage changes could look

The following hypothetical scenario uses Ratehub.ca’s mortgage payment calculator.

The home price used in the example was the average home price in Canada in December, per the Canadian Real Estate Association.

Maha is a homeowner who put a 10 per cent down payment on a $676,640 home. Her five-year variable rate is 4.45 per cent, amortized over 25 years. Her total mortgage is $627,854, and her monthly mortgage payment is $3,458.

If the BoC announces a 25-basis point rate cut, her variable mortgage rate will decrease to 4.20 per cent, and her monthly payment will decrease to $3,371.

Maha will pay $87 less monthly or $1,044 less yearly on her mortgage payments.

Keep up with BoC updates in 2025

Those keen on staying on the pulse of the market should follow the BoC’s X account and look at morning updates on the following dates:

• Wednesday, January 29, 2025 (rate update, monetary policy report, and commentary)
• Wednesday, March 12, 2025 (rate update only)
• Wednesday, April 16, 2025 (rate update, monetary policy report, and commentary)
• Wednesday, June 4, 2025 (rate update only)
• Wednesday, July 30, 2025 (rate update, monetary policy report, and commentary)
• Wednesday, September 17, 2025 (rate update only)
• Wednesday, October 29, 2025 (rate update, monetary policy report, and commentary)
• Wednesday, December 10, 2025 (rate update only)

All announcements typically drop at 9:45 a.m. You can also subscribe to email updates.