Home Organizations & Associations Bank of Canada Businesses & consumers need significant interest rate drop March 12

Businesses & consumers need significant interest rate drop March 12

Drop of 50 basis points needed to be of real help to business functionality.

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CANADA – FEDERAL ELECTION NEWS 2025

Monday March 10, 2025 | VICTORIA, BC

Economic analysis by Mary P Brooke | Island Social Trends

CLICK HERE for March 12, 2025 Bank of Canada rate announcement livestream

Canada’s economy continues to experience a growing state of uncertainty due to the ongoing trade war that the United States started under the leadership of President Donald Trump. 

While a certain path is never really known, there are many current factors that force households, small business and investors to think about their options.

  • How will tariffs on Canadian exports to the United States be applied by US President Trump (the dates and threats keep changing)?
  • Will Canadians be able to keep up with the grinding burden of the ever-increasing cost of everything — particularly groceries and housing/renting — while somehow managing to pay down high levels of debt?
  • Will governments be able to continue much longer with affordability supports? If the consumer carbon tax is now cancelled (by incoming prime minister Mark Carney) will affordability payouts still continue for low-income Canadians?
  • Will cutbacks of programs and employees be necessary in 2025, especially if government needs to support tariff-impacted sectors? The BC government says it’s doing a full program review, and BC Budget 2025 does not include any specific affordability credits (other than a $110 rebate for ICBC driver policy holders).
  • Will the 2025 federal election lead to a change in how the government manages the economy? Will a new direction look like investment or cutbacks?
  • How low will the value of the Canadian dollar go in 2025 compared to the US dollar? As of today the Canadian dollar is worth 69 cents compared to the US dollar.
tiff macklem, carolyn rogers
Bank of Canada Governor Tiff Macklem and Deputy Governor Carolyn Rogers during Jan 29, 2025 media session. [livestream]

The interest rate is currently 3.0%:

The Bank of Canada policy interest rate was lowered to 3.0% on January 29, 2025. That was a 0.25% drop, considered fair but cautious.

interest rate, january 29, 2025
The Bank of Canada dropped their policy interest rate by 25 basis points to 3.0% on January 29, 2025.

Now that the economy seems to be heading for certain disruption, the Bank of Canada may wish to consider a 50 basis point drop, bringing the interest rate down to 2.5%.

Though in its usual cautious manner, the central bank might drop the rate by only 25 basis points; a 50 point drop might be seen as dramatic and would possibly set off a panic response which is the last thing the Canadian financial market and businesses need right now.

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Late, but still helpful:

Had a rate drop below 3.0% happened sooner, the economy may have been able to recover sooner and be better prepared — at least in the sense of business and consumer confidence.

Now it’s too late for a natural positive rebound and continuing to lower the rate seems all but necessary in order to help maintain the confidence of mortgage holders, small businesses, and investors.

In this time of tariff trade warfare, this is a time for the Bank of Canada to take strong leadership in a way that they are perhaps not accustomed to.

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Rates dropped five times in 2024, and again in January 2025:

The Bank of Canada interest rate remained at 5% from July 12, 2023 to June 5, 2024 but then was dropped five times in 2024, landing at 3.25% by year-end:

Bank of Canada, interest rates, Sept 2023 to Jan 2025
Bank of Canada interest rates from Sept 2023 to Jan 2025. [Bank of Canada]
  • On June 5 the rate was lowered by 25 basis points from 5% to 4.75%.
  • Then on July 24 the rate was dropped a further 25 basis points to 4.5%.
  • On September 4 the rate was dropped another 25 basis points to 4.25%.
  • On October 23 the rate was dropped 50 basis points to 3.75%.
  • On December 11 the rate was dropped by 50 basis points to 3.25%.
bank of canada, interest rates, July 2023 to Dec 2024
Bank of Canada interest rates from July 2023 to Dec 2024. [Bank of Canada]

Who benefits by lower rates:

Generally speaking, it is only those who hold mortgages and small business loans and lines of credit at variable rates who will benefit in the short term from any lowering of the central bank’s interest rate.

It is difficult in current economic conditions for businesses to reduce their prices. Even with a drop in interest rates, it’s seen by businesses as more of an opportunity for some modest expense relief as opposed to passing on savings to their customers.

credit cards

Credit card companies almost never drop their interest rates in any immediate way, if at all, in response to central bank rate cuts. They are still interested in maximum gain from their customers.

This is what economists call ‘sticky’ interest rates; once the credit card companies raise their rates they rarely bring them back down, at least not until they’ve had the opportunity to get even more revenue from interest payments by their cardholders.

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Federal policy:

It seemed odd to hear former finance minister Chrystia Freeland during the Liberal leadership debate on February 25 that she would lower credit card interest rates — a long stretch of a promise at best.

If Freeland ends up in Mark Carney’s new Liberal cabinet it will be interesting to see if she is in a portfolio having anything to do with finance or the economy.

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Household debt:

Household debt is now the highest it’s ever been in Canada.

This is not about frivolous overspending but in most cases about people relying on credit cards to pay for necessities like groceries, regular family expenses and topping up rent payments.

Living off credit for regular monthly household expenses is for the most part unsustainable, as many Canadians barely hang on living month to month while continually accumulating credit card debt.

stress paying bills, household
Households are finding it increasingly difficult to pay bills as prices of nearly everything continues to climb.

High inflation impacts are embedded:

The impact of high inflation from the post-pandemic period is now fully baked into the cost of nearly everything.

As stated several times by Island Social Trends in recent months — the lowering of the Bank of Canada interest rate has been too slow and too little to really help average Canadians and small businesses.

  • People have had to make significant and often long-term adjustments to their lives and lifestyles including paying much higher rents or shifting their household social situation.
  • In order to make ends meet many households and small businesses have taken on even more debt (where banks are willing), and/or make smaller less frequent payments on their credit obligations.
  • The cost of nearly everything has gone up, including the basics of life like groceries, housing, transportation and insurance.

The spillover effect of those new burdens is seen across society including the impacts on health and well-being of individuals, households and communities.

While everyone focuses on the Bank of Canada when it comes to interest rates, there may need to be a political influence or solution during these extraordinary times of economic warfare imposed by the United States.

monk office commercial accounts

Rate announcement dates in 2025:

The Bank of Canada 2025 schedule for policy interest rate announcements includes eight announcement dates:

Rates are announced at 9:45 am Eastern Time (6:45 am Pacific). Rates come into effect the day after the announcement.

The Monetary Policy Report will be published concurrently with the January, April, July and October rate announcements.

ist main, trudeau
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