The Bank of Canada (BoC) recently announced its decision to maintain its key interest rate at 2.75% (BNN Bloomberg, Rates.ca). This widely anticipated move comes as the Canadian economy navigates a complex environment of trade uncertainties, inflationary pressures, and signs of moderating growth. For those involved in or considering real estate transactions, a thorough understanding of the BoC's stance, backed by current data and historical perspective, is more crucial than ever.

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Why the Hold? Deciphering the Economic Data

Governor Tiff Macklem emphasized that ongoing "U.S. trade policy and its impacts" remain a significant headwind. However, the decision to hold was multifaceted, based on several key economic indicators:

• Economic Growth: Canada's economy saw a 2.2% growth in the first quarter, slightly ahead of the Bank's forecast. However, the BoC noted this was partly due to a "pull-forward of exports" and "inventory accumulation," while "final domestic demand [was] roughly flat" (BNN Bloomberg). This suggests underlying domestic strength might be less robust.
• Inflation Picture: The inflation scenario is mixed. While headline CPI inflation eased to 1.7% in April, this figure was significantly influenced by the removal of the federal consumer carbon tax, which accounted for an estimated 0.6 percentage point reduction (BNN Bloomberg, Rates.ca). More concerning for the Bank are measures of core inflation, such as CPI-trim, which remained elevated at 3.15% (or 3.2%) (Rates.ca), signaling persistent underlying price pressures. Inflation excluding taxes actually rose to 2.3% in April (BNN Bloomberg). Specifics like grocery prices rising 3.8% year-over-year and travel expenses up 6.7% (Rates.ca) highlight ongoing cost pressures for Canadians.
• Labour Market: The labour market has shown signs of softening, with the national unemployment rate climbing to 6.9% (BNN Bloomberg). Job losses have been notable in trade-sensitive sectors, including 31,000 in manufacturing and 33,000 in the broader goods-producing sector (Rates.ca).

This hold at 2.75% follows a period of seven consecutive rate cuts that commenced in June 2024, bringing the rate down from higher levels. The Bank is now stressing a data-dependent approach for future decisions.

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Today's Rates in Perspective

To understand the current situation, a look back can be insightful:

• The High Inflation Era of the 1980s: Canada has faced high inflation before. In 1981, inflation peaked at a staggering 12.9%. To combat this, the Bank of Canada raised interest rates to as high as 21% (Investment Executive). Today's core inflation, while a concern, is significantly lower, and the Bank's approach is more proactive, guided by an inflation-targeting mandate adopted in 1991.
• Recent Rate Fluctuations: The journey to the current 2.75% rate has been dynamic. We saw rates plummet to a historic low of 0.25% during the COVID-19 pandemic in March 2020 (WOWA.ca). This was followed by a series of aggressive hikes from March 2022 to July 2023, pushing the rate to 5.00% to tackle post-pandemic inflation, before the recent cycle of cuts began in June 2024.

This historical view underscores that while current economic conditions present challenges, the Bank of Canada has a more refined toolkit and a clearer mandate for price stability than in some past crises.

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Impact on the Real Estate Market and Mortgage Rates

A stable Bank of Canada rate offers some predictability, but the housing market is feeling the effects of broader economic conditions and past rate hikes:

• Borrowing Costs: The 2.75% hold means variable-rate mortgages and lines of credit, directly tied to the BoC's rate, remain steady for now. Fixed mortgage rates, influenced by bond yields, may also see a period of relative calm.
• Housing Prices & Sales Activity: The market is showing signs of cooling. The national average home price recently dropped to $679,866. The MLS Home Price Index (HPI) fell 1.2% in April and is down 3.6% year-over-year (Rates.ca). Affordability remains a major hurdle, with average home prices in key markets like Ontario exceeding $859,000 and British Columbia over $942,000 (Rates.ca). Sales activity has also slowed; for instance, Ontario recorded its lowest April sales figures in five years, 31% below the five-year average (Rates.ca).
• Household Financial Strain: The impact of higher borrowing costs is evident in mortgage delinquency rates. In Q1 2025, the 90+ day mortgage delinquency rate in Ontario rose by 71.5% year-over-year to 0.24%, and in British Columbia, it increased by 33.3% to 0.18% (Rates.ca). This indicates growing financial pressure on some homeowners.

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Expert Opinions and What Lies Ahead

Economists are interpreting the BoC's "dovish hold" with varied outlooks. While 20 out of 26 economists polled by Reuters anticipated the hold, a similar proportion expect at least two more rate cuts in 2025 (Yahoo Finance).

Some, like TD Bank's Leslie Preston, suggest that persistent trade uncertainties could tip the economy towards a recession, necessitating further rate cuts. Others, like BMO’s Douglas Porter, believe the BoC is less inclined towards immediate future cuts, emphasizing reliance on incoming data on growth and inflation. National Bank economists view a July cut as "more likely than not," pointing to the BoC's readiness to act decisively if data indicates growing economic slack.

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What This Means for Your Real Estate Decisions

For Coldwell Banker Horizon Realty clients, this period of a steady key interest rate, coupled with the detailed economic backdrop, offers a moment for careful planning:

• Buyers: With borrowing costs holding for now, this is an opportune time to solidify your budget and mortgage pre-approval. The current market dynamics, including increased inventory in some areas and moderating prices, may present buying opportunities.
• Sellers: A stable interest rate environment can support buyer confidence. However, understanding the nuanced local market conditions, including current sales volumes and pricing trends, is crucial for a successful sale.

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The Bank of Canada's next rate decision is scheduled for July 30. The economic landscape remains fluid, and the team at Coldwell Banker Horizon Realty is committed to providing you with the latest insights and expert advice to help you navigate your real estate journey. Contact us for a personalized consultation.