No Change to Variable Rates Today!

Bank of Canada chose not to change rates today. The overnight rate remains at 2.75% with the Prime Rate sitting at 4.95%.

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Now remember, this directly impacts those with a Variable/Adjustable Rate Mortgage. This does not directly impact Fixed Rates.

For Example: If you have a Home Equity Line of Credit, the rate is typically Prime + .50%. Keeping your rate at 5.45%. Where if you have a Variable/Adjustable Rate Mortgage, it typically ranges from Prime - .50% to -1.10% keeping the current rates at 3.85% - 4.45%.

What is the Bank of Canada Overnight Rate?

The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market.

The Bank of Canada holds this Key Lending rate. They might lower it to encourage borrowing and spending OR they may increase it to curb inflation and debt levels.

Major lenders typically raise their prime rate when there is a hike. Thats the number they use to set interest rates for loans and mortgages.

Unlike a fixed rate where one is locked in to their rate, those in a variable rate will be affected by these changes. Home owners with fixed rate mortgages won't be affected until they have to renew.

Should I lock into a Fixed Rate now?

Historically variable rates have shown to save you more money in the long run.

A few things you should consider before locking into a Fixed rate is:

• Are you planning to sell your home in the near future? Then we would highly recommend you stay in your variable rate mortgage.

• Can your budget handle a payment increase if rates go up?

• Will you be putting extra money down on your mortgage each month? If so, the savings from a variable rate can help you pay down your mortgage faster.

If you are considering locking in, give us a call to discuss first. We have a fun little calculator to help you forecast your savings if you decide to stay with your variable rate.

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Whats to come??

Source: First National - one of Canada's largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.

The Bank of Canada announced today that it is keeping its benchmark interest rate at 2.75%. This hold-the-line approach was widely expected and reflects the Bank’s expert interpretation of current macroeconomic data, including inflation.  

We summarize the Bank’s observations and its 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.”

Stay Tuned

Next Schedule Interest Rate announcements will be September 17th, 2025