The Bank of Canada (BoC) is holding its key interest rate for the second time this year.
In its first rate announcement since Prime Minister Mark Carney’s snap election win, Canada’s central bank revealed on Wednesday that it would be holding the key interest rate at 2.75 per cent, despite the country’s increasing core inflation.
Given heightened political and economic tensions right now, several factors influence this rate decision.
The Bank of Canada announced its first interest rate hold of the year in April, maintaining its policy rate at 2.75 per cent.
According to the Crown corporation, since then, the United States administration has been back-and-forth with various tariffs, stepping back from extremely high tariffs with China, while bilateral trade negotiations have begun with a number of countries.
“However, the outcomes of these negotiations are highly uncertain, tariff rates are well above their levels at the beginning of 2025, and new trade actions are still being threatened. Uncertainty remains high,” reads the rate announcement.
Bank of Canada holds policy rate at 2¾%https://t.co/J0f9Ia0YSv#economy #cdnecon
— Bank of Canada (@bankofcanada) June 4, 2025
Taking into account the unpredictability of U.S. tariffs, the softer but not weaker Canadian economy, and “unexpected firmness” in the latest inflation data, the BoC decided to hold the policy rate as it gains”more information on U.S. trade policy and its impacts.
“We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval,” stated the Governing Council. “We will support economic growth while ensuring inflation remains well-controlled.”
The Bank of Canada had made two 0.25 per cent cuts before April, with the last one on March 12 bringing it down to the current rate.
“While the headline number is below the central bank’s two per cent target, temporary drops in gas prices have masked persistent increases in other spending categories,” explained Penelope Graham, Ratehub.ca mortgage expert.
She adds that the Crown corporation will continue to model potential scenarios that also depend on how the U.S.-Canada tariffs spat evolves.
“With expectations rising that GDP will contract this quarter and next – officially ushering in a recession – the BoC is still likely to deliver more cuts in 2025, but won’t be in a rush to do so prematurely,” said Graham.
What the Bank of Canada rate hold means for homeowners and buyers
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Rates.ca mortgage and real estate expert Victor Tran says Canada is moving into what is typically one of the slowest periods of the year (July and August) when it comes to home sales.
He adds that home sales have been slow and prices have been softening, especially in major cities in Ontario and British Columbia, while smaller markets like Edmonton have been seeing strong sales.
“This disparity points to affordability as an influential factor in whether a housing market is stagnating or not, even with an ongoing trade war and economic uncertainty,” explained Tran. “We aren’t likely to see significant movement in the B.C. and Ontario housing markets in the near future. While prices in these markets are softening, they are still unaffordable for many.”
If you’re holding off on purchasing a home to wait for deeper rate cuts from the BoC, Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert, says that strategy could backfire.
“Today’s variable mortgage rates—currently ranging from approximately 3.95 per cent to 4.4 per cent, depending on the term and mortgage product—may represent the low point in this rate cycle for some time,” she explained.
“Even if rates fall slightly, the real impact could be renewed buyer competition, which drives home prices up. We saw that exact pattern after the pandemic—rates dropped, and prices surged,” added Zlatkin. “If buyers wait too long, they could end up paying more for the same home, even if the rate is marginally lower.”
The next Bank of Canada interest rate announcement will be on July 30.