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The Bank of Canada held its key policy rate at 2.25% today, a decision that came as no surprise to markets and economists.
More importantly, the Bank signalled that it isn’t in a rush to move interest rates in either direction. With the economic outlook still clouded by uncertainty, policymakers are choosing to wait for clearer signals before making their next move.
In practical terms, this was a "wait-and-see” decision.
A cautious view of the economy
In its updated Monetary Policy Report (MPR), the Bank made only modest changes to its economic outlook. It estimates that Canada’s economy stalled late last year, but expects growth to gradually pick up in early 2026. Even so, overall growth is expected to remain modest, with the economy expanding at just over 1% this year.
The Bank continues to point to soft spots and ongoing uncertainty in the economy. While household spending is expected to improve slowly, the labour market remains under pressure. Unemployment is still elevated, hiring plans are weak, and businesses remain cautious, particularly given ongoing trade risks.
BMO’s chief economist Douglas Porter said the Bank of Canada appears "quite comfortable” keeping interest rates where they are for now, given the unpredictable economic backdrop. BMO continues to expect the Bank to remain on hold through 2026, with Porter noting that if rates do move this year, a cut would be more likely than a hike.
Inflation is closer to target, but the Bank isn’t declaring victory
One area where the tone shifted slightly was inflation. The Bank now says inflation is close to its 2% target and expects it to remain around that level through 2026. That’s a subtle but meaningful change from earlier messaging that suggested underlying inflation pressures were still running hotter.
CIBC economists described the Bank’s stance as firmly neutral, pointing to the Bank of Canada’s own view that it is "difficult to predict the timing or direction of the next move.” CIBC continues to expect no change in policy through the end of 2026, but notes that if rates do move, the balance of risks appears tilted toward a cut rather than a hike.
What this means for borrowers
For borrowers, today’s decision changes very little in the near term.
Variable-rate mortgages and lines of credit tied to prime remain unchanged, while fixed mortgage rates continue to be influenced by bond markets rather than by the Bank of Canada’s policy rate.
Many economists expect rates to remain where they are for the time being, barring a major surprise in inflation, employment or trade developments.
That doesn’t mean today’s decision doesn’t matter. It suggests rates are likely to stay put for a while, even if the longer-term outlook is still unclear.
If you’re renewing a mortgage, considering a move, or simply trying to make sense of where rates may head next, I can help put today’s headlines into context and clarify what matters most for your situation. |