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The Bank of Canada held its benchmark interest rate at 2.75% this week, marking its third straight hold in the current rate-cutting cycle.
While the decision itself was widely expected, the Bank's latest Monetary Policy Report shed new light on where interest rates could be headed next and what that could mean for Canadian borrowers.
Headline inflation continues to ease, coming in at 1.9% in June, but the Bank noted that underlying price pressures remain sticky. Core inflation measures like CPI-median and CPI-trim are still hovering closer to 3%. That’s one reason policymakers are holding off on additional cuts for now.
At the same time, the Canadian economy is showing more resilience than expected. Consumer spending has remained steady, and business investment continues to provide support. That resilience is giving the Bank more reason to proceed cautiously.
The outlook is also being shaped by ongoing trade tensions with the U.S. The Bank modelled three potential scenarios for tariffs: one where current measures remain in place, one where they escalate, and one where they ease. Under its base-case forecast, growth is expected to stay soft through the summer before gradually improving, with inflation settling near the 2% target.
TD economist Andrew Hencic noted that the Bank’s tone suggests it’s keeping its options open depending on what unfolds. "A plausible path for the economy is one that lands somewhere between the current and de-escalation scenarios," he wrote. "The resulting build-up in spare capacity and the continued easing in inflation pressures will keep the door open to further policy rate cuts."
In its statement, the Bank reaffirmed that rate cuts remain on the table. It said that "if a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
What this means for borrowers
For now, most lenders are expected to keep their prime rate at 4.95%, meaning no immediate change for those with variable-rate mortgages or lines of credit.
Fixed mortgage rates, while not directly tied to the Bank of Canada’s policy rate, may still move based on broader economic trends and bond market activity.
The Bank's next rate announcement is scheduled for September 17, giving policymakers time to assess new data on inflation, GDP and trade developments before deciding whether further easing is warranted.
If you have questions about how this may affect your mortgage or borrowing strategy, feel free to reach out. |