Bank of Canada holds key interest rate steady at 2.75% for third consecutive time

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07/30/25 14:30

U.S. Federal Reserve leaves interest rates unchanged

– The Associated Press

The Federal Reserve left its key short-term interest rate unchanged for the fifth time this year, brushing off repeated calls from President Donald Trump for a cut.

The Fed’s decision Wednesday leaves its key short-term rate at about 4.3 per cent, where it has stood after the central bank made three cuts last year. Chair Jerome Powell has said the Fed would likely have cut rates already if not for Trump’s sweeping tariffs. Powell and other Fed officials say they want to see how Trump’s duties on imports will impact inflation and the broader economy.

There were some signs of splits in the Fed’s ranks: Governors Christopher Waller and Michelle Bowman voted to reduce borrowing costs, while 9 officials, including Powell, favoured standing pat. It is the first time in more than three decades that two of the seven Washington-based governors have dissented. One official, Governor Adriana Kugler, was absent and didn’t vote.

The choice to hold off on a rate cut will almost certainly result in further conflict between the Fed and White House, as Trump has repeatedly demanded that the central bank reduce borrowing costs as part of his effort to assert control over one of the few remaining independent federal agencies.

Read the full story on the Fed’s decision here.

07/30/25 12:10

What’s next?

– Mark Rendell

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• The Bank of Canada’s next interest rate decision is on Sept. 17.
• The U.S. Federal Reserve will announce its latest interest rate decision at 2 p.m. ET, followed by a press conference by Fed Chair Jerome Powell at 2:30 p.m. The Fed is expected to keep the target for the federal funds rate in the 4.25 per cent to 4.5 per cent range.
• U.S. President Donald Trump has set an Aug. 1 deadline to reach some sort of trade deal with Canada and a number of other countries. However, both Mr. Trump and Prime Minister Mark Carney have signalled that a deal may not get done by Friday. If no deal is reached, the President has said he will increase tariffs on Canadian goods that don’t comply with USMCA rules of origin to 35 per cent from the current rate of 25 per cent. Mr. Trump has also said 50 per cent tariffs on copper will come into force on Aug. 1.
• Statistics Canada reports May GDP numbers on Thursday. June trade numbers are out on Aug. 5, while the July jobs numbers will be published on Aug. 8. The July inflation numbers will be released on Aug. 19.

07/30/25 11:25

Macklem on the changing nature of global trade

– Mark Rendell

“President Trump has dramatically increased U.S. protectionism. … But even before President Trump was elected, trade has been shifting. During previous administrations, the first Trump administration, the Biden administration, there were more restrictions on trade and around the world. Trade needs to factor in national security in a way that it hasn’t as much in the past. In the past, you could really optimize purely for efficiency. Now you have to think about national security. The world is fragmenting and you know that that is going to have an impact.”

07/30/25 11:21

Macklem asked about Ontario Premier Doug Ford‘s ‘shocked’ reaction to BoC hold

– Mark Rendell

Mr. Macklem, when asked about Ontario Premier Doug Ford saying he was “shocked” by the BoC decision:

“I would underline that the experience of the last few years has really highlighted just how much Canadians don’t like inflation. We will support the economy through this period of upheaval. But at the same time we are going to make sure that a tariff problem does not become an inflation problem.”

07/30/25 11:17

Bank of Canada senior deputy governor Carolyn Rogers on higher defence spending

– Matt Lundy

“I think in the long run, they probably will help productivity. Ideally, what we want to see is those investments in our own economy, so that they build our own capacity. They generate some economic activity within Canada. That effect won’t be immediate. Those things take a long time to play through the economy. But yeah, we can be optimistic that that’ll be net positive to productivity.”

07/30/25 11:01

Macklem on how tariffs affect the economy

– Matt Lundy

“Unfortunately, the sad reality is that tariffs mean the economy is going to work less efficiently. It means there’s going to be less income, so there’s going to be less consumption. So yes, the economy will resume growing, but it’ll be on a permanently lower path, and in that sense, yes, the tariffs have a permanent effect on the economy unless they’re removed.”

07/30/25 10:53

Quotes from Macklem’s press conference so far

– Matt Lundy

Tiff Macklem on Canada-U.S. trade:

“Let’s hope there’s an agreement between Canada and the United States. Let’s hope it’s a good agreement. … It’s going to be hard to restore trust. I think some level of uncertainty will continue.”

Mr. Macklem on inflation:

“One of the reasons why we held the policy rate unchanged is because, yes, we have seen some additional pressures in underlying inflation core measures. … As I mentioned, some of the factors that may be causing that increase should unwind. The Canadian dollar’s appreciated after depreciating. … We’re just starting to see the effects of the tariffs and the countermeasures in CPI inflation. You can see [it] a little bit in food. There’s probably some more to come there. So that’s going to put some upward pressure [on inflation].”

07/30/25 10:42

Economists react to today’s BoC interest rate hold

– Darcy Keith

Here’s what some analysts are saying in response to the bank’s decision.

Bradley Saunders, North America economist at Capital Economics

“The Bank of Canada’s communications suggest that policymakers are beginning to prioritize the downside risks to growth over the upside risks to inflation. Indeed, the bank estimates GDP growth contracted by 1.5% annualized in the second quarter – far worse than our current 0.5% estimate. It also noted that ‘a number of economic indicators suggest excess supply in the economy has increased since January.’ The tone on inflation was less severe, pointing out that high shelter inflation remained the main contributor to inflation but ‘continues to ease.’...The closely watched final paragraph was unchanged, stating that the bank would support growth while ensuring Canadians retained confidence in price stability. But the rest of the bank’s messaging makes us more confident in our non-consensus call that there are still two more rate cuts to come this year, taking the policy rate down to 2.25%.”

Andrew Grantham, senior economist, CIBC

“Overall, the bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future. However, it is clearly not there yet and upcoming data will remain more important than today’s slight change in language in determining if that support comes at the September meeting as we currently forecast.”

Taylor Schleich, Ethan Currie and Noah Black, economists at National Bank Financial

“While the September meeting is ‘live,’ data over the next seven weeks will need to co-operate. Most importantly, a moderation in the bank’s core inflation measures will be needed to restart the easing cycle. For our part, we see sluggish economic growth and labour market softness ahead, which would help moderate underlying price pressures. The recent Business Outlook Survey supports that view as the outlook for sales, investment and employment appear challenged given consumers’ self-reported retrenchment. Our base case outlook is consistent with further monetary policy easing, although there’s a chance we’ll have to wait until Q4 to see another cut. Simply put, data dependence continues to define the policy rate path.”

07/30/25 10:39

Key quotes from Tiff Macklem’s press conference opening statement

– Mark Rendell

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On U.S. trade agreements with other countries

“Some tariff agreements have been negotiated between the United States and its trading partners, and that has reduced the risk of a severe and escalating global trade war. Unfortunately, the tariffs in those agreements also suggest the United States is not returning to open trade.”

Global economy more resilient than expected

“So far, the global economic consequences of U.S. trade policy have been less severe than feared. U.S. tariffs have disrupted trade in major economies, and this is slowing global growth but by less than many anticipated. While growth in the U.S. economy looks to be moderating, the labour market has remained solid. And in China, lower exports to the United States have largely been replaced with stronger exports to other countries.

“In Canada, we had robust growth in the first quarter of 2025, mostly because firms were rushing to get ahead of tariffs. In the second quarter, the economy looks to have contracted, as exports to the United States fell sharply – both as payback for the pull-forward and because tariffs are dampening U.S. demand.”

What’s happening to the Canadian economy?

“Growth in spending by Canadian businesses and households is being restrained by uncertainty. And new U.S. tariffs are having profound impacts on directly affected sectors. A number of economic indicators suggest excess supply in the economy has increased since January.

“Nevertheless, the Canadian economy is showing some resilience so far. A number of surveys suggest consumer and business sentiment is still low, but has improved. In the labour market, we are seeing job losses in the sectors that rely on U.S. trade, but employment has kept growing in other parts of the economy. The unemployment rate has moved up modestly to 6.9%.”

Are there inflation risks?

“In the current tariff scenario, there are offsetting upward and downward forces at play, which we outline in the MPR. Boiling it all down, there are reasons to think that the recent increase in underlying inflation will gradually unwind…The picture is somewhat different when we look at the alternative scenarios. In the de-escalation scenario, lower tariffs improve the growth outlook and reduce the direct cost pressures on inflation. In the escalation scenario, higher tariffs weaken the economy and increase direct cost pressures.

“There is also uncertainty about the impact of tariffs. Many businesses report they are facing costs related to finding new suppliers and developing new markets. These costs are difficult to evaluate and could add upward pressure to consumer prices.”

Where is monetary policy going?

“We 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, there may be a need for a reduction in the policy interest rate.”

07/30/25 10:32

Many homeowners will face higher mortgage rates upon renewal this year

– Rachelle Younglai

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The Bank of Canada gave borrowers no relief in today’s rate decision, leaving many homeowners facing higher mortgage payments when they renew their loans this year.

Mortgage rates are still higher than they were five years ago when thousands of Canadians borrowed at record low costs.

In its monetary policy report, the central bank said that shelter inflation remains above its historical average, though it has continued to gradually decline. “Growth in mortgage interest cost slowed to 5.6 per cent,” it said.

Economists had predicted many Canadians would face a renewal shock this year as their five-year mortgages expire. While rates have come down 150 basis points from their peak, the popular five-year fixed mortgage rate is between 4 and 4.5 per cent compared with less than 2 per cent in 2020 and 2021.

That is leading households to clamp down on spending so they can handle their new payments. The central bank said that the higher mortgage payments for some households facing renewals would further weigh on consumption.

In some cases, the increased payments may have contributed to mortgage delinquencies in the country’s most expensive real estate markets in Ontario and B.C.

“There are signs of mounting stress among mortgage holders,” said Robert Hogue, assistant chief economist with RBC.

07/30/25 10:28

A path to rate cuts

– Matt Lundy

For rate watchers, arguably the most important thing said by Bank of Canada Governor Tiff Macklem this morning was near the end of his opening statement.

“If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate,” he said in prepared remarks.

The outlook certainly isn’t great. The central bank expects a contraction in the second quarter, along with gross domestic product growth of around 1 per cent over the second half of the year. This is under the “current tariff scenario,” which assumes that Canada-U.S. trade policies remain in place.

Of course, these policies are subject to change – and imminently. U.S. President Donald Trump has threatened to impose 35-per-cent tariffs on imports from Canada that don’t comply with rules of origin in the North American trade pact, up from 25 per cent, starting Friday.

Realistically, this affects just a small portion of trade between the countries. But Mr. Trump has also threatened to impose 50-per-cent tariffs on copper – also on Friday – affecting a multibillion-dollar export industry for Canada.

So the BoC’s “current tariff scenario” could very well turn into a “dated tariff scenario” within 48 hours. And that would likely hamper the country’s growth prospects.

On inflation, meanwhile, Mr. Macklem said “there are reasons to think that the recent increase in underlying inflation will gradually unwind.”

Money markets aren’t convinced that the Bank of Canada will cut rates again in 2025, owing to the uncertainty on trade and the pesky state of inflation.

But given Mr. Macklem’s comments, and the shaky outlook for the Canadian economy, there is certainly scope for further rate reductions. And many analysts on Bay Street think rate cuts could resume in the fall.

“Overall, the Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a client note after the BoC decision.

“However, it is clearly not there yet and upcoming data will remain more important than today’s slight change in language in determining if that support comes at the September meeting as we currently forecast.”

07/30/25 10:22

Mortgages rates may not be going down, but borrowers can negotiate them down

– Erica Alini

This isn’t the summer that many Canadians with mortgages up for renewal were hoping for. With the Bank of Canada’s key interest rate on hold, so are further declines in variable mortgage rates.

Meanwhile, worries about tariffs and inflation are also putting upward pressure on bond yields, which affect the level of fixed mortgage rates.

And yet, there’s an important silver lining. Homeowners with renewals are enjoying an unusual amount of bargaining power right now, for a couple of reasons.

First, late last year federal regulators scrapped rules that previously required many homeowners to requalify for the mortgage stress test if they wanted to switch lenders at renewal. The move has made it a lot easier for mortgage holders to shop around for lower rates and better terms.

Second, lacklustre home sales have made it more important for lenders to retain business from mortgage renewals, some industry insiders report.

“The slow housing market of late means that lenders are currently competing for mortgage business,” according to Victor Tran, a mortgage expert at financial products comparison site Rates.ca.

“This means that there may be better mortgage rates or more attractive policy terms available than those that are publicly posted or initially offered at renewal.”

07/30/25 10:16

BoC hold won’t do much for Canada’s real estate market

– Rachelle Younglai

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The Bank of Canada’s decision to hold rates steady won’t do much for the country’s real estate market.

Although more buyers have made purchases in May and June, the market remains below the 10-year average.

One reason for the slow sales is that mortgage rates – between 4 and 4.5 per cent – are still higher than they have been in years.

Home prices are still too expensive for many Canadians, especially first-time homebuyers in the biggest job market of Toronto. That has made it difficult for prospective buyers to save enough for a down payment and to qualify for a large enough mortgage.

A survey by lobby group Mortgage Professional Canada found that 70 per cent of recent buyers needed help from their parents or other sources to come up with a down payment.

The group’s president Lauren van den Berg said that any future interest rate relief will be critical for borrowers. But she also said other measures are needed to make homeownership more affordable.

“We need more than just interest rate moves,” she said.

In a statement announcing its decision, the central bank said “there may be a need for a reduction” in rates if the economy weakens.

The typical home price across the country is about $700,000. In the Toronto and Vancouver regions, the typical home price tops $1-million.

07/30/25 10:05

Reaction from markets, Canadian dollar on today’s BoC decision

– Darcy Keith

This was never destined to be the most riveting Bank of Canada rate decision – both markets and economists were nearly unanimous in predicting no change to the overnight rate. And indeed, we’re seeing little reaction in forex and bond markets to the news so far today.

The Canadian dollar was sinking well ahead of the decision on the back of a stronger-than-expected GDP reading in the U.S., which sent the greenback higher. At 9:57 a.m. ET, the loonie was trading at 72.36 US cents, down about half a cent from overnight – with most of that move happening well before the BoC announcement.

Canada’s two-year bond yield, which is quite sensitive to central bank rate policy, was flat for the day after the decision, quoted at about 2.77%. And implied interest rate probabilities in overnight swap markets now suggest about a 20% chance the Bank of Canada will cut rates at its next meeting on Sept. 17, and 40% odds on Oct. 29. That’s not far from where they stood prior to the rate decision. Swap markets are only pricing in even odds on whether there will be a rate cut by the end of this year at all. Current pricing suggests an overnight rate of 2.59% as the year concludes.

In other words, markets are saying maybe there could be another quarter point cut by December, but don’t count on it.

07/30/25 09:50

Bank of Canada holds key interest rate again at 2.75%

- Mark Rendell

The Bank of Canada held its policy interest rate steady for the third consecutive time, noting that the Canadian economy has weathered U.S. tariffs better than expected while uncertainty remains pervasive.

As widely anticipated, the central bank’s governing council voted to keep the benchmark interest rate at 2.75 per cent, where it has been since March.

Governor Tiff Macklem said there was a “clear consensus” to hold the rate steady, but suggested the door remained open to additional rate cuts if needed.

“If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate,” he said, according to prepared press conference remarks.

The central bank is operating amid massive levels of uncertainty created by U.S. President Donald Trump’s barrage of tariffs and attempt to rewrite the rules of global trade. The rate decision lands only two days ahead of the Aug. 1 deadline Mr. Trump set to strike some sort of trade deal with Canada. He has since thrown doubt on whether that deadline will be met.

As in April, the bank decided not to publish a central forecast in its quarterly Monetary Policy Report. Instead it outlined three potential scenarios for inflation and economic growth that depend on the trajectory of Mr. Trump’s global trade war and Ottawa’s continuing negotiations with Washington.

Read the full story on today’s interest rate decision here.

07/30/25 09:00

U.S. Federal Reserve expected to keep rate unchanged this afternoon, despite pressure from Trump to cut

- Mark Rendell

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Several hours after the Bank of Canada rate announcement, attention will shift south of the border, where the U.S. Federal Reserve will deliver its latest interest rate decision at 2 p.m. ET and Chair Jerome Powell will likely have to fend off new broadsides from President Donald Trump.

Like the Bank of Canada, the Fed is expected to remain on hold, keeping the target for the Federal Funds Rate in the 4.25 per cent to 4.5 per cent range, where it has been since December.

The world’s most important central bank has stayed on the sidelines through the opening months of Mr. Trump’s trade war, wary that tariffs could reignite inflation.

So far, U.S. inflation has remained relatively tame. But it ticked higher in June and many economists expect companies to start passing on the cost of tariffs to customers in the coming months as they run down inventories.

At the same time, the U.S. economy has held up better than many feared when Mr. Trump began ratcheting tariffs up to levels not seen since the 1930s. That’s kept the Fed idling, waiting to see which way the data breaks.

Mr. Trump has made life difficult for the central bankers. He has repeatedly called for the Fed, which acts independently from the government, to cut interest rates. And he has threatened to fire Mr. Powell, reportedly going as far as drafting a letter and showing it to Republican lawmakers.

The President has retreated somewhat over the past week, saying he isn’t planning to fire Mr. Powell, whose term as chair ends next May. But the relentless attacks on Fed leadership make the central bank’s job politically fraught at a moment when shifting trade policy is already creating uncertainty.

Members of the Federal Open Markets Committee, which sets interest rates, expect to cut later in the year, according to the so-called “dot plot” published in June, which captures FOMC members’ predictions.

Analysts will be watching today for hints about a September rate cut, and whether there are any dissents among the FOMC members to the rate decision. Two Fed governors, Christopher Waller and Michelle Bowman, have already signalled that they want the Fed to cut today.

The rate decision will be followed by a press conference by Mr. Powell at 2:30 p.m. ET.

07/30/25 08:15

Bay Street sees BoC hold as a sure thing

- Mark Rendell

The unanimous sentiment on Bay Street is that the Bank of Canada is going to hold its benchmark interest rate at 2.75 per cent today.

Interest rate swap markets, which capture market expectations about monetary policy, put the odds of a quarter-point rate cut at less than 10 per cent, according to LSEG data. Swap markets see only one more rate cut in 2025, sometime later this year, which would leave the policy rate at 2.5 per cent.

All 28 analysts polled by Reuters last week said they expect a hold at the July 30 rate decision.

There is more disagreement about what the BoC will do after that. Around two-thirds of the poll respondents think the central bank will resume cutting in September, and roughly the same number are expecting at least two more quarter-point cuts by the end of the year.

07/30/25 07:00

Bank of Canada expected to hold key rate at 2.75 per cent

- Mark Rendell

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The Bank of Canada is expected to remain on the sidelines for the third consecutive time as U.S. President Donald Trump’s trade war continues to sow uncertainty for the Canadian economy.

The central bank has kept its benchmark policy rate at 2.75 per cent since April, waiting to see how much Mr. Trump’s tariffs stifle economic activity, as well as how much supply chain disruptions and Ottawa’s retaliation push up consumer prices.

With annual core inflation measures at 3 per cent and no clarity on a potential trade deal with the U.S. ahead of the Aug 1 deadline, there’s little chance the bank will cut today, according to Bay Street analysts and financial market pricing.

The key questions surrounding the rate decision are how Governor Tiff Macklem and his team will talk about the impact of tariffs and the risk of inflation, and whether they will publish a central forecast after foregoing one in April.

The rate decision will be announced at 9:45 a.m. ET alongside the publication of the bank’s quarterly Monetary Policy Report. Mr. Macklem and senior deputy governor Carolyn Rogers will hold a press conference at 10:30 a.m. ET.

After cutting interest rates eight consecutive times in 2024 and early 2025, the BoC has been taking a wait-and-see approach to monetary policy. Trade wars tend to push up consumer prices. But they can also hurt economic activity and increase unemployment, which puts downward pressure on inflation over time. That puts central bankers in a bind.

All eyes will be on how Mr. Macklem weighs these two risks in his press conference remarks. Analysts will also be parsing the MPR to see if the central bank has published a forecast, or opted once again to publish upside and downside risk scenarios based on different possible trade war outcomes.

Read more about today’s expected Bank of Canada decision.