After seven straight rate cuts, the Bank of Canada kept its key interest rate steady at 2.75%. While the prime lending rate—which impacts variable-rate mortgages, lines of credit, and HELOCs—remains at 4.95%. This might feel like a pause, it’s more of a “wait and see” moment as it watches how ongoing trade tensions and tariffs continue to play out across the Canadian economy.
In its latest update, the Bank acknowledged that economic momentum is slowing. Consumer confidence has dipped, businesses are holding back on spending, and residential investment has pulled back. Simply put—Canadians are becoming more cautious. On top of that, job growth is starting to stall, with some companies already making cuts, as shown in the latest employment numbers.
Instead of offering a single economic forecast, the Bank of Canada released two possible scenarios in its Monetary Policy Report:
- Scenario 1: A short-term tariff shock. This would slow the economy for the next few months, but things would stabilize in the second half of 2025. Inflation would stay close to the Bank’s 2% target.
- Scenario 2: A prolonged trade war. This would be more damaging—potentially pushing Canada into a recession through the rest of 2025. Inflation could temporarily climb to 3% as supply chains are disrupted and costs rise.
Why Didn’t The Bank of Canada Cut Rates?
Even though the signs point to economic weakness, the Bank of Canada opted to hold. Why?
- Inflation is still being monitored closely. Although it eased a bit last month, the Bank likely wants to see a more consistent downward trend before taking further action.
- They want room to respond later. Cutting too quickly might limit their flexibility if things worsen unexpectedly.
- Geopolitical uncertainty. With so much still up in the air—especially around global trade and tariffs—the Bank doesn’t want to move too fast.
What to Expect Next
Markets are already pricing in a 0.50% rate drop before the end of 2025, with a strong chance the next cut comes as soon as June 4.
Even though Canada hasn’t been hit with the worst of the global tariffs, we’re not immune to the ripple effects. Slower business activity, rising costs, and lower consumer spending all take their toll—and that’s exactly what we’re seeing now.
What This Means for You
If you’re a homeowner, investor, or thinking about making a move, here’s what you should be watching:
- Fixed rates could drop again. If the Bank of Canada cuts rates further, lenders may respond by lowering fixed-rate offerings—potentially creating an opportunity to refinance or lock in a better rate.
- Variable rates are likely to fall. If you’re in a variable-rate mortgage, your payments could drop later this year, providing some relief.
- Real estate may become more active again. As borrowing becomes cheaper, more buyers may step back into the market, though confidence will take time to recover.
The Bank of Canada hit pause for now, but signs of economic stress are building. With inflation softening and growth slowing, the odds of another rate cut in June are high. If you’ve been waiting for the right time to refinance, buy, or make a strategic financial move, let’s talk about your options before the market shifts again.