This Bank of Canada update reinforces the view that the Canadian economy remains soft, but not weak enough to justify an immediate rate cut.
Key Takeaways
1. The Bank remains concerned about inflation
- Headline inflation has risen to 2.8%, above the Bank's 2% target.
- Higher oil prices and the removal of the consumer carbon tax from annual inflation calculations have contributed to the increase.
- Core inflation measures, however, are closer to 2%, which is encouraging.
2. Economic growth is sluggish
- GDP declined 0.1% in Q1, weaker than expected.
- Business investment remains weak.
- Housing activity has slowed.
- Employment has essentially been flat since the beginning of the year.
These factors normally argue for lower interest rates.
3. Global risks are preventing rate cuts
The Bank highlighted:
- Ongoing conflict in the Middle East.
- Elevated oil prices.
- Continuing uncertainty surrounding U.S. trade and tariff policies.
- Global supply-chain disruptions.
These risks could reignite inflation, making the Bank cautious about cutting rates too soon.
What This Means for Mortgage Rates
Variable Rates
The overnight rate remains at 2.25%, so:
- Prime rates are unchanged.
- Existing variable-rate mortgages and HELOCs tied to prime remain unchanged.
- Most lenders' prime rates should remain around 4.45%.
Fixed Rates
Fixed mortgage rates are driven primarily by Government of Canada bond yields, not the overnight rate.
- Bond yields have been volatile.
- Elevated inflation and oil prices could keep fixed rates from falling significantly in the near term.
- If economic weakness continues and inflation eases later this year, fixed rates could gradually trend lower.
What to Watch on July 15
For the Bank to cut rates at its next meeting, it would likely need to see:
- Inflation moving closer to 2%.
- Continued weakness in economic growth.
- Rising unemployment.
- Stabilization in oil prices.
At the moment, the market appears to be pricing in a higher probability of another hold than a cut at the July 15 announcement.
For Saskatchewan Homebuyers and Homeowners
The current environment remains relatively favourable:
- Variable-rate borrowers continue to benefit from rates that are much lower than they were in 2023 and 2024.
- Fixed rates remain competitive, generally in the mid-to-high 3% range for well-qualified insured borrowers.
- Affordability has improved compared with the peak-rate period, although economic uncertainty remains.
For clients seeking mortgage approvals, the Bank's decision means qualification calculations and lender pricing remain largely unchanged for now. The next major driver of mortgage-rate expectations will likely be incoming inflation data and the Bank's July 15 policy announcement.