The Bank of Canada has once again responded to economic uncertainty by announcing its sixth consecutive interest rate cut, lowering the benchmark rate by 25 basis points to 3% on January 30, 2025. This decision reflects growing concerns over the economic fallout stemming from potential trade tariffs imposed by the United States.
The Bank's action was anticipated by many economists and market analysts, echoing fears of slower growth and rising inflation driven by external pressures. According to BNN Bloomberg, the primary driver behind the rate reduction is the wave of uncertainty clouding economic projections, particularly linked to U.S. President Donald Trump’s proposed 25 percent tariffs on Canadian goods announced to take effect shortly.
Warren Lovely, chief rates strategist at the National Bank of Canada, highlighted the rapidity of the Bank's rate-cutting strategy. "We’ve moved from 5 percent at its peak to 3 percent now, that's 200 basis points in six meetings," he commented, noting the comparative speed of Canada’s moves against global trends.
Ed Devlin, founder of Devlin Capital and senior fellow at the C.D. Howe Institute, applauded the Bank's aggressive stance, saying, "The Bank of Canada is more concerned about negative growth versus near-term inflationary impacts from any tariffs and retaliatory measures." This sentiment is echoed by Earl Davis from BMO Global Asset Management, who emphasized, "Seventy-five percent of our trade is with the US, so if the US is doing well, we’ll do well." Yet, with tensions mounting, many fear for the stability of Canada’s economy.
Governor Tiff Macklem has cautioned against potential trickle-down effects if tariffs are enacted. “If Canada and other nations slapped a retaliatory 25% tariff on the United States, this could cut Canadian growth by 2.5 percentage points,” he warned during the announcement, underlining the precarious position of the relationship between the two countries.
The rate cut reflects broader apprehensions, not just about tariffs but also about sluggish economic growth overall. Projections for Canada’s economic growth were adjusted downwards; the Bank forecasts growth rates of only 1.8% for both 2025 and 2026, down from earlier estimates of 2.1% and 2.3% respectively.
The Canadian dollar responded to the news with slight depreciation against the U.S. dollar, albeit its movement was considered muted due to prior communications from the Bank leading to the event. The new rates place Canada’s interest rate far below those of its trading partners, including the U.S. and the UK, raising concerns about the loonie's competitiveness.
Within the sector of commercial real estate, the reaction has been mixed. While some experts like Kevin Meyler from BDO Canada acknowledged the rate cut could slightly alleviate financial pressures, he remains wary of the persistent hurdles facing the market. He noted, "Commercial real estate has been challenged for some time, so I think this is kind of built intothe pricing. I think commercial real estate is still going to have some headwinds and struggles."
Others, like Mark Fieder of Avison Young Canada, expressed cautious optimism, identifying sectors such as industrial and multi-family real estate as potential beneficiaries of renewed activity later this year. “We remain optimistic about a longer-term bull run going,” he stated, acknowledging risks but also recognizing opportunities arising from the current economic climate.
Investor sentiment is still fogged by uncertainty, chiefly driven by the potential for tariffs and changing consumer conditions resulting from such political maneuvering. If consumer confidence wanes, retail properties might bear the brunt of economic fallout.
Michael Tsourounis, managing partner at Hazelview Investments, conveyed how reduced borrowing costs would likely stimulate investment activity. "Lower borrowing costs will improve liquidity, and we anticipate increased transaction activity, especially in sectors like multi-family," he remarked. This could potentially aid the creation of much-needed housing supply.
Looking forward, analysts encourage long-term perspectives when considering investment opportunities. Meyler suggested, "There’s still a finite amount of real estate... I have to believe it will rebound. Historically it traditionally has. So, I do think it’s an opportunity. And I think if it’s priced right, they may want to look at it right." While the immediate future remains clouded with uncertainty, signs of recovery may emerge for those willing to navigate this complex environment.