Rock bottom rates? Not so fast
The idea of mortgage rates plunging back to rock bottom holds a certain (savings) allure for Canadian home buyers and owners.
After all, we saw it twice in recent memory — after the 2008/09 financial crisis and again with the 2020 pandemic crash. Both episodes pushed the Bank of Canada’s policy rate down to 0.25%, the floor it still calls its ‘effective lower bound.’
Now, in 2025, due to this year’s trade disruption, recessionary signs are emerging once again. GDP shrank at an annualized rate of -1.6% in the second quarter of 2025. Job losses are piling up, and tariffs are squeezing business margins and consumer wallets.
The question lingers: Could this downturn crack the economy wide enough for rates to hit rock bottom?
When did rates last fall to the floor?
History shows it took more than a mild slowdown to get there.
Financial Crisis of 2008/09: Sparked by the U.S. subprime mortgage collapse, the crisis froze global credit and tipped Canada into a 7-month recession. The Bank of Canada slashed its policy rate, which drives variable mortgage rates, from 4.5% to 0.25% and kept it relatively low for several years. Fixed mortgage rates averaged around 2.9% through the aftermath, dipping to the mid-to-low 2s by 2016 amid subdued inflation.
Pandemic Crash, 2020-22: Lockdowns and business closures sent the economy into a short but deep two-month recession (yes, you remember). Emergency stimulus propped it back up, as the BoC cut rates from 1.75% to 0.25%. By December 2020, the best 5-year fixed rate averaged just 1.45% — a historic low. (View this mortgage brokerage’s historical rates here.)
Both episodes share a theme: extraordinary shocks, not mild recessions.
Trade war and tariff trouble — is it enough?
This time, the triggers look different. A new trade war with the U.S. (as it also challenges other nations on this front) has introduced much higher tariffs on some Canadian exports, which are starting to bite. Job losses are mounting, the unemployment rate is climbing, and business investment has fallen by 10%.
At the same time, the tariffs and trade disruption are also raising prices in Canada, for now.
However, despite the GDP shrinking in all three months of Q2 2025 and an unemployment rate rise to 7.1%, consumer spending remained resilient, and the effects were not yet widespread.
Economists are split on where things go next: some see meagre growth returning by year-end, while others warn that a deeper, tariff-driven recession could emerge if the trade impact expands.
How low could rates really go?
Here’s where the consensus hardens: most economists — and True North Mortgage Founder and CEO, Dan Eisner — don’t see a return to a 0.25% Bank of Canada rate (at least, not yet).
Cuts are expected, but not all the way down. Dan explains, “The trade disruption is certainly an abrupt blow this year, but for rates to head that far down, there also needs to be widespread consumer pullback combined with inflation that’s lower than the BoC’s target. Another rate cut or two is likely to support a demand upturn, perhaps enough to stave off a full-blown recession as companies adjust to new trade realities.”
Recession rate scenarios: mild vs severe
A mild recession, or walking the line, could see the BoC trim its policy rate from 2.75% to somewhere around 2.0% to 2.25%. That’s lower than today, but far from rock bottom.
If we end up seeing a deeper recession with global fallout — for example, the unemployment rate breaks above 8%, GDP contracts for multiple quarters, and international growth stalls while inflation tracks lower from reduced demand — the BoC could test its lower bound once again.
Global conflict could be added to the mix to worsen a recession by raising oil prices and disrupting supply chains further.
However, the trough would also need to overwhelm the government stimulus already being introduced. That’s a tall order.
The (rock) bottom line?
Reaching rock bottom is relatively rare, and for good reason. It took a financial crisis and a pandemic to get us there last time.
Today’s slowdown is real, and especially painful for tariff-impacted businesses and workers. But unless national conditions deteriorate significantly and are more widespread, Canadians should expect rate cuts that stop well above zero.
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