Today, the Bank of Canada (BoC) announced it would maintain its target overnight rate at 2.75%, along with the Bank Rate at 3.00% and the deposit rate at 2.70%
This marks the third straight pause in the interest rate easing cycle, as policymakers balance inflation risks against slowing economic momentum.
Trade Policy Uncertainty
High and unpredictable U.S. tariffs on Canadian exports remain a central concern. Canada’s exports—especially in steel, aluminum, and autos—are facing significant pressure, contributing to muted GDP growth and heightened market uncertainty.
Economic Weakness Offset by Resilience
While Canada’s GDP likely contracted by about 1.5% in Q2 due to export disruptions, the overall economy has shown resilience. The labor market remains solid outside tariff‑impacted sectors, and consumer spending—even if slowing—is holding up the economy.
Inflation Trends
Headline Consumer Price Index (CPI) inflation stood at 1.9% in June, with core or underlying inflation around 2.5%, remaining within the BoC’s 1–3% comfort zone.
In its Monetary Policy Report, the BoC outlined three potential paths forward:
Tariffs remain in place: Modest contraction in growth before a gradual recovery, with inflation hovering near 2%.
Tariffs ease: Stronger economic rebound, reduced price pressure.
Tariffs escalate: Prolonged contraction, inflationary pressures rise.
Governor Tiff Macklem emphasized that future policy will remain data‑dependent and cautious, with potential rate cuts if downside risks materialize further and inflation stays contained.
| Key Metric | July 30, 2025 Decision |
|---|---|
| Overnight Rate | 2.75 % |
| Bank Rate | 3.00 % |
| Deposit Rate | 2.70 % |
| CPI Inflation (June) | ~1.9 % |
| Core Inflation Estimate | ~2.5 % |
| Rate Status | Held steady for 3rd meeting |
| Policy Outlook | Dovish tone with possible cuts |
| Key Risk | U.S. trade policy uncertainty |
Variable-rate borrowers: You’re likely to see stability in mortgage payments for now—the prime rate typically mirrors BoC policy rate movements.
Fixed-rate borrowers: Bond market sentiment now leans toward rate cuts by autumn, which could translate into better fixed rates later this year.
Homebuyers and investors in Canada: Continued uncertainty around trade may keep financing conditions cautious, but affordability could improve if rates decline.
The BoC’s decision to hold rates at 2.75% reflects a careful balancing act. On one side, ongoing tariff-related economic risks; on the other, moderate inflation and signs of resilience. Markets are now watching whether trade tensions will reduce, potentially opening the door for rate cuts later in 2025.
As 2025 progresses, BoC will remain attentive to inflation developments and macroeconomic signals—and mortgage and housing stakeholders should stay alert as well, especially if the bank pivots to an easing bias.
