Bank of Canada keeps interest rate policy unchanged for July 2025
The Bank of Canada announced today that it is keeping its benchmark interest rate at 2.75%.
This was widely expected and reflects the Bank’s expert interpretation of current macroeconomic data, including inflation.
Mark Herman, best Calgary mortgage broker for first time buyers.
The Bank’s observations are summarized with our outlook below.
Canadian Economic Performance and Employment
- In Canada, US tariffs are disrupting trade but overall, the economy is showing some resilience so far
- After robust growth in the first quarter of 2025 due to a pull-forward in exports to get ahead of tariffs, Canadian GDP likely declined by about 1.5% in the second quarter, a contraction mostly due to a sharp reversal in exports following the pull-forward, as well as lower US demand for Canadian goods due to tariffs
Growth in business and household spending is being restrained by uncertainty
Labour market conditions have weakened in sectors affected by trade, but employment has held up in other parts of the economy
The unemployment rate has moved up gradually since the beginning of the year to 6.9% in June and wage growth has continued to ease
A number of economic indicators suggest excess supply in the economy has increased since January
Canadian Inflation and Shelter Prices
- Inflation measured by the Consumer Price Index (CPI) 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, largely reflecting 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 2½%.
Global Economic Performance, Bond Yields and F/X
- While US tariffs have created volatility in global trade, the global economy has been reasonably resilient
In the United States, the pace of growth moderated in the first half of 2025, but the labour market has remained solid
US CPI inflation “ticked up” in June with some evidence that tariffs are starting to be passed on to consumer prices
The euro area economy grew modestly in the first half of the year
In China, the decline in exports to the United States has been largely offset by an increase in exports to the rest of the world
Global oil prices are close to their levels in April despite some volatility
Global equity markets have risen, and corporate credit spreads have narrowed
Longer-term government bond yields have moved up
Canada’s exchange rate has appreciated against a broadly weaker US dollar
No GDP Projections in July Monetary Policy Report
While some elements of US trade policy have started to become “more concrete” in recent weeks, the Bank notes that trade negotiations are fluid, threats of new sectoral tariffs continue, and US trade actions remain unpredictable.
Against this backdrop, the Bank’s July Monetary Policy Report does not present conventional base case projections for GDP growth and inflation in Canada and globally. Instead, the Report presents a current tariff scenario based on tariffs in place or agreed as of July 27, and two alternative scenarios—one with an escalation and another with a de-escalation of tariffs.
Modest Growth Outlook
The Bank notes that the current tariff scenario has global growth slowing modestly to around 2.5% by the end of 2025 before returning to “around 3%” over 2026 and 2027.
The Bank further postulates that 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. In this scenario, 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, while in the escalation scenario, the economy contracts through the rest of this year.
In the current tariff scenario, the Bank would expect total inflation to stay close to 2% over the scenario horizon as the upward and downward pressures on inflation roughly offset. However, it notes there are risks around this inflation scenario. As the alternative scenarios illustrate, lower tariffs would reduce the direct upward pressure on inflation and 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.
With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, the Bank’s Governing Council decided to hold the policy interest rate unchanged.
It offered that it will 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, the Bank offered that “there may be a need for a reduction in the policy interest rate.”
Final comments
Governing Council added that it 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.
I added: “We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled.”
Next scheduled BoC rate announcement
The Bank is scheduled to make its next scheduled policy interest rate decision of 2025 on September 17th.
Probably the end of Mortgage Rate Reductions for Canada
Expert opinions on Bank of Canada interest rate cuts are shifting. A growing number of market watchers are backing away from their predictions of two more reductions this year. Several are now saying the Bank has likely reached the end of the current trimming cycle.
Back in April we said that Prime is probably going to stay where it is now; discounting the expected 4 more reduction to 0.
that looks to have come true.
5-year fixed is the way to go to side-step all the world’s recent happenings .
Mortgage Mark Herman, best Calgary mortgage broker near me.
The central bank held its trend-setting Policy Rate at 2.75% for a second time in its decision on June 4. Since then, inflation numbers and Gross Domestic Product readings have given the BoC reasonable grounds to stand pat.
Statistics Canada’s latest figures for GDP show it declined by 0.1% in April compared to March. Much of that decline was led by the manufacturing sector, which is falling victim to U.S. tariffs and trade uncertainty. A similar reduction is forecast for May. While many economists admit the slowdown shows the economy is softening, they say it is not on the verge of collapse. GDP is 1.3% higher that it was a year earlier.
The other key factor in the Bank’s rate decisions, inflation, held steady at 1.7% in May. That headline number is actually below the Bank’s target of 2.0% and would normally suggest there is room for a further rate cut. However, that is a little deceiving.
Headline inflation (aka the Consumer Price Index) continued to be skewed by the elimination of the consumer carbon tax. As well, core inflation, which is the BoC’s preferred measure, remains stuck at 3.0%, which is the high end of the Bank’s desired inflation range.
The Bank finds itself trying to balance economic growth against the risk of rising inflation. The Bank’s next interest rate announcement is set for July 30.
Mortgage renewal: Now switch lenders without re-taking the stress test
Great news as a few leading banks, soon to be followed by the rest of the pack, have DITCHED THE STRESS TEST for RENEWALS.
This means if you have extra debts or a debt level higher than when you got your mortgage, some banks can now overlook that and still get you the best rates.
there is now an option if you were concerned about renewing due to higher debt loads or if your financial situatoin has changed since you bought your home.
Technically, this means most conventional switch (more than 20% down payment) customers no longer need to prove they can afford a payment based on the minimum qualifying rate (MQR). That rate is at least 2% higher (or 200 bps where 100 bps = 1.oo%) than actual rates.
This news is just out today for BOTH High ratio/ insured (meaning you bought with less than 20% down payment) AND Conventional (meaning 20% or more down payment)
Note, however, that property values for insurable borrowers must be under $1 million unless grandfathered.
To find out more please call (best) 403-681-4376 or email to reach out for more data.
This is a BIG DEAL. For renewals we always had to do the math to ensure you could change banks and many with higher debts than they bought with were not able to change banks. The banks knew this and offered them renewal rates that were way to high, but the home owners had no option. Now you do!
20 year mortgage expert, Mortgage Mark Herman
YES!
New Housing Rules for 1st First-Time Buyers and New Builds
If you’re a first-time home buyer or looking to purchase a new build, this affects you.
Here’s a quick summary of the changes coming in December 2024:
What’s New?
30-Year Amortizations Now Available for First-Time Buyers and New Build Purchases
- First-time home buyers can now access 30-year amortizations for insured mortgages.
- This increases the amount you qualify for by about 9% or lowers your monthly payment about the same.
- 30-Year Amortization for New Builds – Technically, this took effect on August 1, 2024, and is available to everyone, not just First-Time Homebuyers.
Price Cap Increase for Insured Mortgages
- The price cap (purchase price) for insured mortgages has been raised from $999,999 to $1,499,999 million.
- EG: if you were to purchase a home today priced at $1.1 million, your minimum down payment to qualify for a mortgage would be 20% or $220,000. After December 15th, the minimum down payment required decreases to $85,000.
- If that $1.1 million dollar home also has a self contained suite, you can use the rent or “potential” rent that suite will generate to help qualify for a bit more of a mortgage too.
The Fine Print
Down payment – Great news, minimum requirements stay the same:
- 5% on the portion up to $500,000
- 10% on the portion between $500,000 and $1.5 million
* Previously, the down payment on a $1.5 million home for a First-Time Home buyer was $300,000.
FTHB’s can now get into that same home with $125,000.
This will undoubtedly take some pressure off the Bank of Mom and Dad.
Effective Date
These changes will apply to mortgage insurance applications submitted on or after December 15, 2024. The key word here is ‘submitted.’ Your offer will need to be timed just right if you wish to take advantage of the new 30-year amortization.
Potential Impacts on the Housing Market:
We are in an interesting position right now. On one hand, lenders are competing for new business in what could be described as a ‘rate war.’
Additionally, with First-Time Home Buyers (FTHB) set to qualify for 30-year amortizations after December 15th, we can expect an uptick in demand.
Historically, higher demand leads to higher prices and rate decreases cause an equal and opposite increase in home prices.
Buy or Sell – Now or Later?
While there’s no crystal ball, consider these possibilities:
- Buy Now: Prices are expected to rise once the new rules take effect, so purchasing before December could mean less competition and potentially lower prices.
- Sell Later: If your home is priced between $1 million and $1.5 million, waiting until after December 15th could attract more qualified buyers and possibly higher offers.
More details will emerge as lenders and insurers prepare to offer the new 30-year amortization, such as how lenders will view the minimum down payment.
If you want to discuss how these changes might impact your plans to buy or sell, feel free to reach out!
Variable Rate Beats BOTH 3-year & 5-year Fixed Terms
The Variable is the best way to go right now and this blue link has all the details in PDF: VARIABLE RATE beats both 3-year fixed & 5-year fixed terms
Data point 1: Variable rates should be coming down 2% in the next 13.5 months, with a “jumbo reduction” of 0.5% (1/2%) expected on Wednesday, Oct 23rd – by 5 of the 6 Big Banks.
Data point 2: Historically, fixed rates only go down about 40% of the reductions to Prime, so fixed rates will not be going down anywhere near as much or as fast as the Variable.
Data point 3: Just a 1% rate reduction is expected to “reactivate” at least half of buyers who previously stopped shopping due to “buyer fatigue.”
Data point 4: As interest rates come down, prices INCREASE because most buyer’s need to go to their max mortgage when buying.
Graphic details of expected rate reductions and the dates of expected changes, in PDF: VARIABLE RATE beats both 3-year fixed & 5-year fixed terms
Our favorite customer quote so far in October:
I am not locking in 3-year money nor 5-year money today, when the Bank of Canada has made it clear rates are coming down 2% in the next 15 months.
Mortgage Mark Herman, Top Calgary Alberta Mortgage Broker near me.
GIFTed down Payment now possible for New-to-Canada home buyers!!
For New to Canada buyers – Expanded “GIFT-ing” is now possible for close family members!
That’s right! As of now, May 23, 2024, buyers who are New to Canada – in Canada for less than 2 years – ARE now allowed to use /receive GIFTS for down payment from “close family members.”
This is a big deal because it now includes; aunts, uncles, nephews, and cousins; all were not allowed to provide a “GIFT for down payment” before.
The standard used to be only: mother, father, brother, sister, grandparent and legal guardian; and that was it.
From our data that we have on on our own customers, this will help about 20% of our New to Canada files to buy a home, where they would have been shut out before.
Mortgage Mark Herman, top best fantastic Calgary Alberta mortgage broker, specializing in First Time Buyers.
We view that the Expanded Gift-er Options ARE needed due to the average new home price being 500k+, it is super tough for newcomers to save enough to buy a home. GIFTS are relied on all the time by 1st time home buyers.
Divorce & Mortgage Buy-Out Details, Canada, May 2024
Important data for separating / divorcing partners, this may help with “Buying the ex-spouse out” of a divorce, when some debts need to be rolled in.
The way most lawyers and Big-6 banks do it:
as a refinance, max loan is 80% of the appraised value of the home,
and you get refi rates – the highest – today:
- 3 year fixed 5.76%, 5 year fixed 5.59%
and usually NO debts can be rolled into the mortgage past that 80% of the home value.
with OUR WAY/ Broker way…
we do it as “a purchase after marital breakdown” which allows
max loan of 95% LTV (of the home value) – which usually makes ALL THE DIFFERENCE in a buyout situation.
- BEST RATES again: 3 year fixed 5.39%, 5 year fixed 4.99%
and usually Most/ All/ some debts can be rolled into the mortgage – at no extra cost, depending on your lending ratios.
Data from a similar file –
As long as the deal IS insurable (meaning it conforms to CMHC rules and guidelines) to get that lower rate – actually 0.6% LOWER as of today – then we need an offer to purchase too. Most lawyers do not want also write an “offer to purchase,”
If the Big-6 bank is doing it as a conventional refinance then an offer to purchase is not needed.
Banks don’t have substantially different rates for insurable and conventional like we do. (o.4 to o.9% rate difference makes a huge difference.)
So yes, we can get a separation done without an Offer to Purchase as long as at least 20% of the value stays in the home and we use refinance rates at 0.6% higher than broker best rates today.
Considering customers will leave us for 0.05% and this is 0.6% – that is >10x multiple of what customers consider “worth leaving us for” this is an important way to get divorce deals to work better for everyone.
Mortgage Mark Herman, top/ best Calgary Alberta Mortgage Broker
Prime Rate Holding, July 1st Expected Reduction & Real Estate Economic Data
The Bank of Canada cited the ongoing risk of inflation for its decision to maintain its overnight benchmark interest rate at 5.0%.
Below are the Bank of Canada’s observations, including its forward-looking comments on the state of the economy, inflation and interest rates.
Canadian inflation
- CPI inflation ended the year at 3.4% and the Bank expects inflation to remain close to 3% during the first half of 2024 “before gradually easing” and returning to the Bank’s 2% target in 2025
- Shelter costs remain “the biggest contributor to above-target inflation”
- While a slowdown in demand is said by the Bank to be reducing price pressures in a broader number of CPI components and corporate pricing behavior continues to normalize, core measures of inflation are not showing sustained declines.
Canadian economic performance and outlook
- The Bank notes that the Canadian economy has “stalled” since the middle of 2023 and believes growth will likely remain close to zero through the first quarter of 2024
- Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted
- With weak growth, supply has caught up with demand and the economy now looks to be operating in modest excess supply
- Labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs being created at a slower rate than population growth. However, wages are still rising around 4% to 5%
Global economic performance and outlook
- Global economic growth continues to slow, with inflation easing “gradually” across most economies
- While growth in the United States has been stronger than expected, it is anticipated to slow in 2024, with weakening consumer spending and business investment
- In the euro area, the economy looks to be in a mild contraction
- In China, low consumer confidence and policy uncertainty will likely restrain activity
- Oil prices are about $10 per barrel lower than was assumed in the Bank’s October Monetary Policy Report (MPR)
- Financial conditions have eased, largely reversing the tightening that occurred last autumn
- The Bank now forecasts global GDP growth of 2.5% in 2024 and 2.75% in 2025 compared to 2023’s 3% pace
- With softer growth this year, inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025
Outlook
The Bank believes that Canadian economic growth will strengthen gradually “around the middle of 2024.” Furthermore, it expects household spending will likely “pick up” in the second half of 2024, and exports and business investment should get a boost from recovering foreign demand.
Taking all of these factors and forecasts into account, the Bank’s Governing Council decided to hold its policy rate at 5% and to continue to “normalize” the Bank’s balance sheet.
The Bank’s statement went on to note that Council “is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation” and wants to see “further and sustained easing in core inflation.” The Bank also said it continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
As it has said consistently over the past year, the Bank will remain “resolute in its commitment to restoring price stability for Canadians.”
Although the Bank did not say it, the bottom line is we will have to wait and see what comes next.
Next touchpoint
March 6, 2024 is the Bank’s next scheduled policy interest rate announcement.
The End of Prime Rate Increases, January, 2024, Canada
Horray, today The Bank of Canada didn’t just put rate hikes on the back burner today; it unplugged the stove!
The Bank is now “confident enough” that inflation is on the right track to not publicly dwell on rate hike risk any longer. That was today’s message from Senior Deputy Governor Carolyn Rogers after the BoC left its overnight rate at 5%.
Instead, the Bank says it’s now shifting its focus to “how long” the overnight rate needs to marinate “at the current level.”
Summary:
No more increases to the Canadian Prime Rate of Interest – at 7.2% today, after 10 increases in 2023.
Back in August I said Prime should start to come down in June – still the best guess – and
will come down by o.25% every 3 months, so one-quarter-percent decrease every calendar / fiscal quarter (3 months)
for a total of 2% less than today so … Prime should end up at 5.2% in 30 months, which is June 2026.
Mortgage Mark Herman, top Calgary Alberta and BC mortgage broker
“We need to give these higher interest rates time to do their work,” Macklem said, offering no clues on how long he’ll let the rate hike stew simmer. The forward market thinks it’ll take another 4 – 6 months. Historically, rates have plateaued at peak levels for anywhere from a few months to 17 months. So far, it’s been only 6.
The Bank says that higher rates can’t be completely ruled out, but it’s very rare for the Bank of Canada to hike a bunch, pause 5+ months, hike more, pause 5+ months more, and then hike again.
When Will Canadian Mortgage Rates Begin to Fall?
Last week, the Bank of Canada held its policy rate at 5%. The decision was expected given slowing in the economy and modest improvement to core inflation measures.
The Bank is likely at the end of its tightening cycle. How soon it eases rates – and how low will rates go in the near to medium term – is the question #1
ANSWER: The general view from market economists is that we could see some easing of the overnight rate by mid-2024.
Question #2: How low. how far will Prime come down?
ANSWER: Prime is expected to come down a total of 2%.
DETAILS of Prime Cuts
- Prime is 7.2% now / November 2nd, 2023,
- Prime is expected to get down to to 5.2% or a bit lower, like 4.75% – 5.25% range by the end 2025; which looks like this:
- June/ July 2024, 1st Prime cuts = 6 months
- Prime reduction by o.25% every quarter = 1% less / year for the next 2 years = 24 months
- so these together = 30 months.
With Prime coming down, now is the time for you to take advantage of the Variable Rate reductions.
Variable Rates via brokers are at Prime – o.9%, while the Big-6 banks rates are Prime – o.15%.
YES, broker rates are 6x better than at the Big-6 lenders, o.9 – o.15 = o.75% better. It’s true!
Mortgage Mark Herman; Best Top Calgary Mortgage Broker for first time home buyers.
When might rates begin to fall?
The Bank’s latest Monetary Policy Report (MPR) also provides signals that we can monitor to gauge when rates could start declining.
When interest rates rise, one of the main ways monetary policy affects the economy is through reduced consumer spending on durable goods, like appliances, furniture and cars. Prices for durable goods, except for cars, have dropped from 5.4% to -0.4%, while prices for semi-durable goods, like food and clothing, have decreased from 4.3% to 2.1%. We’re still experiencing delays in delivering cars. As a result, manufacturers are concentrating on selling more expensive vehicles with higher margins and are offering fewer discounts from list prices.
Inflation in service prices, excluding shelter, has slowed from 5.1% to 1.5%. If bond rates begin to drop, we will see a gradual decline in mortgage costs. The challenge will be rental costs, which are soaring due to the very limited availability of rentals and the continuous influx of newcomers. Increasing housing supply is key to reducing rental prices. However, that is a problem that will take years to resolve given the significant shortage of housing.
Currently, the Bank is concerned about inflation expectations, corporate pricing behaviour, and wage growth. As noted in its Monetary Policy Report, “As excess demand eases, inflation is expected to slow. At the same time, inflation expectations should also fall, businesses’ pricing behaviour should normalize, and wage growth should moderate. So far, progress has occurred but somewhat more slowly than anticipated.”
The Bank will be careful to ensure that inflation expectations inconsistent with its 2% target are not embedded in corporate pricing and wage expectations. A slowing economy should help to lower those expectations.
The general view from market economists is that we could see some easing of the overnight rate by mid-2024.
NERD STUFF: Maintaining a restrictive rate policy
The Bank can maintain a restrictive policy even without increasing rates any further, simply by keeping rates at their current level. With the overnight rate at 5% and an inflation rate of 3.8%, the real policy rate is 1.2%. This rate is restrictive, since it is higher than the neutral real rate of interest, which the Bank estimates to be between 0 and 1%.
The neutral real rate of interest is the level of interest that neither stimulates nor restrains economic growth. In other words, it is the rate at which the economy is in balance, with stable prices and full employment. Therefore, when the real rate of interest is restrictive, we would expect GDP to slow.
In its recent Monetary Policy Report (MPR), the Bank is forecasting economic growth to average less than 1% over the next few quarters, while potential output growth is expected to average 2%, mainly due to population growth and increased labor productivity. This should lead to a negative output gap (low demand and a surplus of products) and lower inflation.