Today, the Bank of Canada announced that it would hold the target for the overnight lending rate at its current level of 2.75%. This is the second consecutive month that the Bank has chosen not to change interest rates.
Though inflation levels have gradually eased and the country recorded stronger-than-expected GDP growth in the first quarter of 2025, trade disruptions with the United States continue to cast doubt over Canada’s future economic performance. The labour market has softened, especially in trade-sensitive sectors, pushing unemployment up to 6.9%. Economic conditions are expected to deteriorate further by the end of the second quarter, said the Bank in its announcement.
“Uncertainty remains high. The Canadian economy is softer but not sharply weaker. And we’ve seen some firmness in recent inflation data. Against this backdrop, we decided to hold the policy rate unchanged as we continue to gain more information on US trade policy and its impacts,” said Tiff Macklem, Governor of the Bank of Canada, in a press conference with reporters following the announcement. “The trade conflict initiated by the United States remains the biggest headwind facing the Canadian economy.”
In April, Canada’s Consumer Price Index (CPI) increased 1.7% year over year, easing from 2.3% recorded in March. However, the drop in the CPI was mainly attributed to the end of the consumer carbon tax, which was lifted in early April.
“Many businesses report they are already facing higher costs related to finding alternative suppliers and developing new markets. The Bank will be watching measures of underlying inflation closely to gauge how inflationary pressures are evolving,” said Macklem.
Economic uncertainty slows major housing markets
Real estate markets across the country witnessed a considerably slower spring market in 2025, largely due to weakened consumer confidence in the economy.
National home sales flatlined from March to April, decreasing 0.1% month over month, according to the latest market report from the Canadian Real Estate Association (CREA). According to a recent Royal LePage survey, conducted by Burson,1 49% of Canadians say they are confident in the country’s economy today, including 6% who are very confident; 43% say they are not confident.
“Once again, the Bank of Canada has opted to hold interest rates at their current level. While inflation remains unpredictable and global trade tensions persist, the Bank appears focused on maintaining stability as the labour market shows signs of softening. Amid ongoing uncertainty, the next few rate announcements will be critical in preserving the balance between keeping inflation under control and a weakening economic outlook,” said Phil Soper, president and CEO of Royal LePage.
“In the country’s most expensive real estate markets, sales activity remains stalled, even as conditions increasingly favour buyers with more inventory and reduced competition. Understandably, many potential buyers remain cautious in the face of economic uncertainty. For consumers, today’s rate hold offers a measure of predictability in borrowing costs, especially for those with variable-rate mortgages or planning to enter the housing market in the near future.”
The Bank of Canada will make its next interest rate announcement on Wednesday, July 30th.
Read the full June 5th report here.
1Burson used the Leger Opinion online panel to survey 2,417 Canadians, aged 18+ between April 2, 2025 and April 9, 2025. No margin of error can be associated with a non-probability sample (i.e., a web panel in this case). For comparative purposes, a probability sample of 2,417 respondents would have a margin of error of ±2%, 19 times out of 20.
