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Interest Rates in Canada Could Drop Faster Amid Trade War: Insights for Montreal Homebuyers
March 5, 2025 | Posted by: Yelena Markus
As mortgage rates continue to be a critical factor for homebuyers in Montreal, new economic forecasts suggest that interest rates in Canada may decrease more aggressively than expected due to escalating trade tensions with the U.S.
Trade War Sparks Uncertainty in Canadian Markets
With U.S. President Donald Trump imposing a 25% tariff on most Canadian imports—excluding energy products, which are taxed at 10%—global markets have reacted with volatility. The impact on the Canadian economy is pushing major financial institutions to revise their interest rate projections, predicting a sharper decline than previously anticipated.
Bank of Montreal Revises Interest Rate Forecast
According to Bank of Montreal’s (BMO) chief economist, Douglas Porter, the Bank of Canada is likely to implement at least double the number of interest rate cuts initially forecasted. Porter now expects the Bank of Canada to reduce rates at every meeting until July, bringing the key interest rate down to 2%.
Porter also noted that depending on inflation trends, rates could fall even lower. 'There is potential for further cuts if the economic slowdown persists and inflation remains manageable,' he stated in a recent BMO Economics report.
RBC Weighs In: How Deep Could Interest Rate Cuts Go?
Royal Bank of Canada (RBC) economists Frances Donald and Cynthia Leach echoed similar sentiments, stating that the Bank of Canada’s previous stance on interest rates was largely neutral. Before the tariffs, RBC anticipated a gradual rate reduction to 2.25%, but now, given the ongoing trade disruption, rates may decline more rapidly and significantly.
Government fiscal policies will play a crucial role in determining the extent of these cuts. RBC analysts emphasized that targeted stimulus measures will be necessary to counteract the negative effects of prolonged trade uncertainty, while broad-based financial assistance could risk fueling inflation, complicating the Bank of Canada’s response.
How Lower Interest Rates Affect Montreal Homebuyers
For those looking to buy a home in Montreal, these potential interest rate reductions could mean significant savings on mortgages. Lower rates can:
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Reduce monthly mortgage payments, making homeownership more affordable.
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Increase purchasing power, allowing buyers to qualify for larger loans.
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Create better refinancing opportunities, enabling homeowners to secure lower rates on existing mortgages.
However, with ongoing market uncertainty, timing is crucial. While lower rates may help, buyers should remain aware of potential economic fluctuations and consult with a trusted mortgage broker to navigate the best financing options.
Bank of Canada’s Next Move: March 12 Policy Decision
The Bank of Canada is set to announce its next interest rate decision on March 12. This update will provide clearer guidance on how monetary policy will evolve in response to trade tensions and economic challenges. Homebuyers and investors should stay informed, as these decisions directly impact mortgage rates and overall affordability in the housing market.
Get Expert Mortgage Advice in Montreal
Navigating the current mortgage landscape can be complex. If you're considering buying a home or refinancing, speaking with an experienced mortgage broker can help you secure the best rates and financing solutions.
Yelena Markus, Mortgage Broker in Montreal, is here to assist you in finding the most competitive mortgage options tailored to your needs. Contact Yelena today to discuss how these interest rate trends could impact your home-buying journey!
