The Bank of Canada is set to announce its interest rate decision on July 30, keeping rates at 2.75%. All 28 economists surveyed expect this, with 17 predicting a drop to 2.25% or lower by the end of 2025. The most recent decision on June 4, 2025, held the rate steady at 2.75%, following a cut from 3.00% on March 12. The central bank explained this decision due to a weakening economy, ongoing inflation, and uncertainties in trade, especially concerning U.S. tariffs.

Strategic Considerations For Rate Cuts

With a strong agreement about rate cuts by the year’s end, there’s an opportunity to position for lower borrowing costs in the future. We are exploring strategies like receiving fixed payments on interest rate swaps, which become more valuable as floating rates decrease. Statistics Canada reported that GDP growth stalled at 1.7% in the first quarter, highlighting the need for economic support. This situation also affects the Canadian dollar. Lower interest rates usually make a currency less attractive to foreign investors. We expect the loonie to weaken further, especially since it has struggled against the U.S. dollar this year, staying around the 0.73 mark. Derivative strategies, like buying call options on the USD/CAD currency pair, could benefit from this expected decline. Timing is critical now, as many anticipate the upcoming policy decision will result in maintaining current rates. This is likely due to inflation still above the central bank’s 2% target, with the latest Consumer Price Index at 2.7%. This creates short-term uncertainty about economic data releases, making longer-dated options appealing to capture future moves without penalties for inaction in the short term.

Lessons From Past Economic Movements

Looking back at history can help us gauge the potential speed of future actions. For example, during the 2015 oil price shock, the central bank lowered its key rate by 50 basis points over six months to support the economy. This suggests that once a rate-cutting cycle begins, the pace may be quicker than many expect. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now