Our call for the September 2 decision
We expect the Bank of Canada to hold its overnight rate at 2.25% when it meets Tuesday. The last decision struck a cautious wait-and-see tone — acknowledging stalled growth and unemployment at 6.8%, but stopping short of another cut. Since then inflation has ticked up to 3.03%, driven entirely by higher gasoline prices, while core measures have either held steady or inched up slightly. That backdrop gives the Bank reason to pause.
But the policy statement will matter more than the decision itself. We expect the Bank to lean dovish — emphasising its willingness to cut again if U.S. trade restrictions deepen the slowdown or if consumer spending stays weak. The risk is they surprise with a hike if cost pressures from a weaker dollar or tariffs push inflation persistently above 2%. Our read is they hold this week and cut by late fall if growth stays soft.
The market is pricing in a hold followed by cuts through early 2027. Bond yields have held flat over the last week, which tells us investors believe the Bank has room to ease without reigniting inflation.
The numbers behind the call
Headline inflation rose to 3.03% in July, up from 2.8% the prior month. Strip out energy and the story changes — the two core measures the Bank watches most closely are sitting at 1.9% and 2.0%, exactly where the Bank wants them. The third core gauge (CPI-Common) ticked up to 2.7% from 2.6%, but that remains well within the target band. There is no sign yet of the broad-based price pressure the Bank has warned about.
Analysts we follow note that second-quarter GDP came in stronger than expected at 3.3% annualised, but initial data for July shows flat growth. Trade uncertainty is weighing on business investment and consumer confidence, and the latest round of U.S. tariffs will drag on exports through the fall. Wage growth has also cooled to 2.8%, which reduces the risk that labour costs will feed into prices.
The upside risk to our call is simple: if consumer spending surges unexpectedly or if tariff-related cost pressures show up in a wider basket of goods, the Bank could pause longer or even hike. The downside risk is larger — if hiring stays weak and core inflation drops sustainably below 2.5%, they will cut sooner than the market expects.
What rates did this week
The five-year market rate — the market rate that drives fixed mortgages — closed the week flat at 3.34%, down just two hundredths of a percent over the last five trading days. That stability kept the best five-year fixed rate locked at 4.09%, unchanged from last week.
Variable rates held steady as well. The best five-year variable sits at 3.5% today, roughly 0.60% below the best fixed option. Lenders moved rates 99 times higher and 43 times lower over the last seven days, which reflects normal repricing activity rather than a coordinated shift in either direction.
On a $500,000 mortgage the gap between today's best five-year fixed and five-year variable works out to about $180 per month. That spread is wide enough to make variable appealing if you believe the Bank will cut two or three more times by mid-2027, but narrow enough that fixed still wins if you value payment certainty and believe inflation could surprise higher.
How we're advising clients right now
Our team is steering most clients toward the five-year fixed at 4.09%. Here's why: the Bank is on hold for now, and even if they cut twice more by spring that only brings variable payments down to rough parity with where fixed sits today. If inflation stays sticky or if the Bank pauses longer than expected, variable holders will have paid a premium for flexibility they never used.
Variable at 3.5% suits a narrower group — borrowers with stable income, a cash reserve to cover a quarter-percent move between decisions, and the belief that the trade war will force the Bank into four or five cuts over the next eighteen months. If that scenario plays out variable wins by $150 to $200 per month within a year. But if it doesn't you will have taken on rate risk for minimal savings.
The three-year fixed is priced within a few hundredths of the five-year and only makes sense if you know you are selling or refinancing before 2029. For everyone else the five-year locks in certainty through the next election cycle, the next round of trade negotiations, and whatever the Bank does in response. That is the call 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 payments, and the temperament to ride out a quarter to half a percent upward move between Bank of Canada decisions. If any of those three conditions do not describe your situation, choose fixed. The savings on variable are real when the Bank cuts, but the risk is not theoretical — it is a contract that adjusts every time policy changes, and that requires financial margin most households do not have.
We expect a hold Tuesday with dovish language. Five-year fixed at 4.09% is the call for most borrowers today.
