Why we expect the Bank to hold in July
We expect the Bank of Canada to leave its target rate at 2.25% when it meets on July 15. The headline inflation number that crossed the wire in early June—3.23% year-over-year—will grab attention, but the three core measures the Bank actually steers by all stayed within spitting distance of the 2% target. CPI-Trim and CPI-Median both printed at 2.0% and 2.1% respectively, flat from the prior month, while CPI-Common ticked up to 2.7% from 2.5%. That mix tells us the May spike in total inflation was driven by a handful of volatile categories, not broad-based pressure.
The Bank struck a cautious, wait-and-see tone at its last decision, and nothing in the data since then forces their hand. They've made it clear that a meaningful rise in unemployment above 6.8% or a sharper-than-expected hit from trade disruptions would open the door to another cut. On the flip side, if core inflation stays stuck above 2.5% for several more months—especially if tariff-related costs start pushing wages higher—they'd hold or even tighten to defend their 2% goal.
Our base case: they hold in July, acknowledge the headline noise, and signal that the next move depends on whether the labour market softens or core inflation re-accelerates. In plain terms, they're parking the bus until the data forces them to move.
The numbers behind the call
Total CPI climbed to 3.23% in May, up from 2.82% the month prior—a sharp jump that will dominate the headlines. But the Bank of Canada doesn't steer policy by the headline number. It watches three core measures: CPI-Trim held at 2.0%, CPI-Median held at 2.1%, and CPI-Common rose modestly to 2.7% from 2.5%. All three remain inside the range the Bank considers consistent with its 2% target, which is why we don't expect them to panic.
The latest outlook from analysts we trust points to cooling energy prices and easing supply-chain pressures as tailwinds for inflation over the next quarter, though tariff-related import costs remain a wildcard. If those costs stay contained to goods and don't bleed into wages, the Bank has room to ease further. If they spread, the Bank will hold tight. The unemployment rate and business investment data in the weeks ahead will be the tie-breaker.
What rates did this week
The market rate that drives fixed mortgages—the five-year Government of Canada bond—closed the week at 3.02%, flat over the last five trading days. That stability is a small mercy after the volatility we saw earlier in the quarter, and it kept fixed rates from moving materially in either direction.
Lenders were anything but quiet: twenty-nine raised rates over the last seven days, while thirteen lowered them. The net effect was modest upward pressure on the rate sheet, though nothing that would change the math on a typical mortgage. For context, a flat bond week means the market is digesting the inflation data and waiting for the Bank of Canada's next signal before placing a bet.
The best five-year fixed rate available today is 4.09%. The best five-year variable sits at 3.45%. Variable rates carry more risk right now—the Bank could hold through the end of summer if core inflation doesn't cooperate—but they still offer the lowest monthly payment for borrowers who can stomach the uncertainty.
How we're advising clients right now
Today, we're steering most clients toward a three-year fixed at around 4.19% or a five-year fixed at 4.09%. The five-year wins on rate, but the three-year wins on flexibility—if the Bank does cut twice more by mid-2027, you'll be free to refinance into a lower rate without breaking a longer term. For borrowers who plan to sell or move within three years, the three-year is the safer bet. For those who want to lock in certainty and ride out the next half-decade without touching their mortgage, the five-year fixed is hard to argue with.
Variable rates at 3.45% are tempting—they're sixty-four percent cheaper than the best five-year fixed, which saves you roughly one hundred and sixty-five dollars a month on a five-hundred-thousand-dollar mortgage. But that advantage evaporates fast if the Bank holds through year-end or hikes once to defend the inflation target. Choose variable only if you have stable income, a reserve fund that can cover six months of payments, and the temperament to ride out a quarter- or half-percent upward move between now and next spring. If any of those conditions don't apply, lock in fixed today.
Before you pick variable, read this
Variable rates only suit borrowers with stable income, an emergency reserve that can cover at least six months of mortgage payments, and the temperament to ride out quarter- or half-percent upward moves between Bank of Canada decisions. If a rate hike would force you to cut into savings or defer other financial goals, variable is not for you. Lock in fixed and sleep well.
We expect the Bank to hold in July, which makes the five-year fixed at 4.09% the safest call for most borrowers today.
