After seven consecutive rate cuts, the Bank of Canada (BoC) hit pause — holding its key policy rate at 2.75% on April 16, 2025 — as growing uncertainty around U.S. tariffs clouds the country’s economic outlook. Canada’s central bank chose not to issue its usual economic forecast, citing an inability to predict how trade tensions will evolve in the upcoming days, weeks and months.
Instead, the BoC presented two starkly different scenarios, including one that projected a deep recession and rising inflation if tariffs escalate.
Governor Tiff Macklem said the Bank of Canada will proceed cautiously — a clear signal that the easing cycle isn’t necessarily over, but any future rate cuts will depend heavily on how global events unfold.
“A lot has happened since our March decision five weeks ago, but the future is really no clearer,” Macklem said in the April 16 annoucement. “We still do not know what tariffs will be imposed, whether they’ll be reduced or escalated and how long all of this will last.”
For Canadians, this means more economic whiplash — with potential winners and losers depending on how the rate environment evolves. While borrowers have benefitted from cheaper credit so far, businesses and households must now brace for ongoing volatility and the possibility of more aggressive action from the central bank if the economy stumbles.
Winners: Who benefits from recent BoC rate hold?
Bird’s Eye View: Borrowers (for now) and flexible investors
Despite the Bank of Canada holding rates at 2.75%, borrowers — especially those with variable-rate debt — continue to benefit from the cumulative effect of previous cuts. For Canadians with adjustable mortgages, lines of credit, and personal loans, current borrowing costs remain low compared to early 2024 levels. This has helped many households manage payments or refinance to improve cash flow.
However, the benefits may be short-lived. With economic growth expected to stall in the second quarter and inflation projected to dip to 1.5% in April (thanks largely to lower crude oil prices and the rollback of carbon taxes), the environment could shift rapidly if tariffs escalate.
Investors with diversified or inflation-sensitive portfolios — including real assets or short-term bonds — may also find opportunities amid volatility. In scenario one, where tariffs are rolled back, the BoC expects modest economic recovery and a return to 2% inflation, which could stabilize markets.
Reader Tip: If you’re carrying debt, this is a window to lock in lower rates. But be cautious — a reversal is possible if inflation climbs again under worsening global trade conditions. Compare personal loan options to find the lowest rate.
Losers: Who is hurt by lower interest rates?
Bird’s Eye View: Exporters, savers and businesses facing uncertainty
Exporters are among the most vulnerable groups in this new rate environment. In the worst-case scenario outlined by the BoC — a long-term global trade war — some export-focused businesses could go bankrupt, especially those reliant on U.S. markets. Unemployment would likely rise, and Canadians may be forced to cut back on spending.
Savers are also being squeezed. With inflation temporarily dipping and interest rates still below pre-2024 levels, the real returns on fixed-income investments like GICs and high-interest savings accounts remain modest. In the event of a prolonged recession and rising inflation (as in scenario two, where inflation spikes to 3.5% by mid-2026), the purchasing power of these savings could erode even further.
Businesses, especially small and mid-sized firms, face challenges from reduced consumer demand, weakened business investment, and policy unpredictability. Hiring freezes, cutbacks, and delays in expansion plans are already surfacing in sectors sensitive to trade and consumer sentiment.
Reader Tip: Diversify savings vehicles and keep an eye on inflation-indexed products. Business owners should consider scenario planning to navigate potential downturns. Compare high-interest savings accounts and set up an easily accessible account to park cash.
Why interest rates change: Balancing growth and inflation
The BoC uses interest rate adjustments to influence economic activity and inflation. With inflation dipping — with a projected inflation of 1.5% in April 2025, which is significantly down from the rates seen in 2024 — the central bank sees room to stimulate growth without risking runaway price increases.
However, this balancing act isn’t without risks. Economists like Frances Donald, chief economist at RBC, warn that external challenges, including U.S. tariffs and global trade uncertainty, could still pressure Canada’s economy, making further rate cuts a double-edged sword.
James Orlando, an economist with TD, emphasizes the cautious nature of the BoC’s approach: “Given where interest rates are in Canada, we think the BoC can go slower with its cuts.” This careful strategy reflects the complexity of stimulating growth while avoiding excess borrowing.
Reader Tip: Stay informed about inflation reports and economic forecasts to anticipate future rate changes.
First-time homebuyers: Navigating rate changes
For first-time homebuyers, lower rates can help improve affordability, but not dramatically in high-cost housing markets.
Thielmann advises buyers to avoid trying to “time the market” based on minor rate changes. Instead, focus on what you can afford today and ensure your financial plan includes a buffer for potential future rate increases — just in case.
Tools like Tax-Free Savings Accounts (TFSAs) are invaluable for saving toward a down payment. These accounts allow Canadians to grow their savings tax-free, making them an attractive option for young buyers seeking to navigate high housing costs.
Another great option is the First-Time Home Savers Account (FHSA). Structured in a similar fashion to the TFSA, an FHSA lets you save for a home and avoid paying tax on earnings generated in the account. This can mean more money in the bank for your down payment.
Reader Tip: Open a TFSA or FHSA to maximize tax-free growth and expedite your savings goals.
Broader implications: Stimulating growth or exacerbating debt?
While rate cuts encourage spending and investment, they also carry risks. The availability of cheap credit may lead to over-leveraging, particularly as Canadians already carry high levels of household debt. Increased reliance on credit could create financial vulnerabilities if rates rise again or if inflation accelerates — adding extra pressure to household budgets.
Still, this recent rate cut will help. Tiago Figueiredo of Desjardins predicts this recent rate cut will provide a cushion for Canadians facing mortgage renewals, alleviating some of the financial pressure from elevated borrowing costs.
Reader Tip: Maintain a healthy debt-to-income ratio and focus on paying down high-interest debt to protect against future rate increases.
6 practical tips for adapting to rate changes
To help, here are six tips to help you adapt to rate changes:
- Adjusting your financial strategy to align with changing rates.
- Diversify your investment portfolio to mitigate risk and ensure your savings continue to grow.
- Revisit your budget to account for potential changes in borrowing or savings rates.
- Consult a financial advisor to get tailored advice for navigating these shifts.
- Explore flexible savings accounts, particularly accounts that offer cash back or rebates.
- Consider refinancing fixed-rate debts for greater financial resilience.
Bottom line
Interest rate changes create both opportunities and challenges for Canadians. While borrowers and businesses benefit from cheaper credit, savers and retirees face diminishing returns.
Understanding these dynamics and proactively managing your finances can help you navigate rate shifts effectively. As the Bank of Canada continues to balance inflation and growth, staying informed and adaptable will remain key to financial success in 2025 and beyond.
— with files from David Saric
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
