The decision: rates on hold
The Bank of Canada kept its target for the overnight rate at 2.75% today, with the Bank Rate at 3% and the deposit rate at 2.70%.
This means your variable-rate mortgage — if you've got one — stays put for now. Fixed rates, which move on bond markets, have been doing their own thing lately (we'll get to that).
Why the Bank didn't move: trade chaos and no clear forecast
US trade policy is a moving target. Some tariffs are firm, others are threats, and negotiations change daily. Because of that uncertainty, the Bank's July Monetary Policy Report doesn't present the usual base case forecast. Instead, it offers three scenarios: one based on tariffs in place as of July 27, one with tariff escalation, and one with de-escalation.
That's unusual. It tells you the Bank doesn't have enough visibility to commit to a single path — so it's waiting.
What's happening globally
Despite the tariff noise, the global economy has held up reasonably well. In the United States, growth slowed in the first half of 2025, but the labour market stayed solid. US inflation ticked up in June, and there's evidence tariffs are starting to show up in consumer prices.
The euro area grew modestly. In China, lost exports to the US were mostly offset by sales to the rest of the world. Global oil prices are close to April levels despite some volatility. Equity markets have risen, corporate credit spreads have narrowed, and longer-term government bond yields have moved up. The Canadian dollar has appreciated against a broadly weaker US dollar.
Under the Bank's current tariff scenario, global growth slows modestly to around 2.5% by the end of 2025, then returns to around 3% over 2026 and 2027.
What's happening in Canada
US tariffs are disrupting trade, but the Canadian economy is showing some resilience. After robust growth in the first quarter of 2025 — driven by businesses rushing to export before tariffs hit — GDP likely shrank by about 1.5% in the second quarter. That contraction mostly reflects a sharp reversal in exports after the pull-forward, plus lower US demand for Canadian goods due to tariffs.
Business and household spending are both restrained by uncertainty. Labour market conditions have weakened in sectors hit by trade, but employment has held up elsewhere. The unemployment rate rose gradually to 6.9% in June, and wage growth has continued to ease. A number of indicators suggest excess supply in the economy has increased since January.
The Bank's three scenarios for growth
In the current tariff scenario, after contracting in the second quarter, GDP growth picks up to about 1% in the second half of this year as exports stabilize and household spending increases gradually. Economic slack persists in 2026 and diminishes as growth picks up to close to 2% in 2027.
In the de-escalation scenario, economic growth rebounds faster. In the escalation scenario, the economy contracts through the rest of this year.
Inflation: close to target, but with upward pressure
CPI inflation was 1.9% in June, up slightly from the previous month. Excluding taxes, inflation rose to 2.5% in June, up from around 2% in the second half of last year. This largely reflects an increase in non-energy goods prices. High shelter price inflation remains the main contributor to overall inflation, but it continues to ease. Based on a range of indicators, underlying inflation is assessed to be around 2.5%.
In the current tariff scenario, total inflation stays close to 2% over the scenario horizon as upward and downward pressures on inflation roughly offset. Lower tariffs would reduce the direct upward pressure on inflation; higher tariffs would increase it. In addition, many businesses are reporting costs related to sourcing new suppliers and developing new markets. These costs could add upward pressure to consumer prices.
Why the Bank held: balancing two forces
With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged.
They'll continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade. 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 the Bank is watching
Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve.
Their focus: ensuring Canadians continue to have confidence in price stability through this period of global upheaval. They'll support economic growth while ensuring inflation remains well controlled.
What this means for your mortgage
If you're on a variable rate, nothing changes today. If you're shopping for a mortgage or renewing soon, fixed rates are driven by bond markets — which have been pricing in their own read on tariffs, inflation, and future rate moves. That's why you might see fixed rates move even when the Bank doesn't.
The next scheduled rate announcement is September 17, 2025. Between now and then, we'll be watching the same things the Bank is: trade developments, inflation prints, and how the economy responds to uncertainty.
If you're up for renewal or thinking about your rate strategy, let's talk. We'll walk through your options based on what's actually happening — not what might.
