Monday Market Minute | Mar 17, 2025

BoC cuts to 2.75% — growth concerns outweigh tariff inflation risk

What Moved

The Bank of Canada cut 25 basis points to 2.75% on March 12, choosing to support a weakening domestic economy over holding firm against tariff-driven price pressures. Macklem's statement acknowledged the inflation risk from trade disruption but argued that demand-side weakness posed the more immediate threat. Bond markets rallied on the decision, with the 5-year Government of Canada yield dropping to 2.9% — its lowest since late 2022. Mortgage rates followed, with posted 5-year fixed rates dipping below 4.5% at several lenders.

Why It Matters

The cut reinforced private credit's yield advantage: even at lower base rates, private lending spreads of 500-700bps over prime maintained absolute yields that dwarfed public fixed income alternatives. For real estate, the mortgage rate decline improved buyer affordability and borrower qualification metrics. PE firms with leveraged buyout structures saw immediate improvement in debt service coverage ratios across portfolio companies.

Signal to Watch

The spring housing market response to sub-4.5% mortgage rates would test whether rate relief alone could overcome the confidence drag from ongoing trade uncertainty.

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