Bank of Canada Holds Rate at 2.75% – What It Means for You
- Simon Bilodeau
- Jul 30
- 4 min read
Dear reader, The Bank of Canada (BoC) announced this morning (July 30, 2025) that it is holding its key overnight interest rate at 2.75%, unchanged for the third consecutive time after two 0.25% rate cuts earlier this year. As a result, the prime lending rate for mortgages remains at 4.95%, meaning variable-rate borrowers won’t see any change in their payments.
This cautious pause reflects the BoC’s attempt to balance persistent inflation pressures with growing signs of economic softening. The next rate decision is scheduled for September 17, 2025.
Economic Outlook: Recession Risks vs. Inflation
Canada’s economy showed surprising resilience in Q1 (GDP grew ~2.2%), partly due to businesses front-loading purchases ahead of incoming tariffs. But this early boost has faded, and the BoC now expects weaker performance in Q2. That advance spending likely pulled activity forward, dampening the rest of the year. The BoC's own forecast places Q2 in negative territory.
Some private forecasts go further: the CFIB expects the economy to shrink by 0.8% in both Q2 and Q3, which would meet the technical definition of a recession. Despite this, the BoC is holding to its base-case scenario of mild growth in the second half of 2025.
Trade tensions remain high, with the prospect of a new agreement with the U.S. fading. I believe a deal will come—but likely less favourable than previous ones. On top of that, no federal budget has been tabled, leaving bond markets guessing whether Ottawa is planning for a $40 billion or a $100 billion deficit. I expect the 2025–26 deficit to land closer to $85–90 billion, well above the $40B “guardrail” that had been promised.
That level of spending may eventually push the BoC to resume bond-buying, especially if no one wants to see rates back above 5%. So while the BoC officially sees no recession ahead, the risk is clearly there—they just aren’t ready to act on it yet.
Labour Market & Real Estate
In June, unemployment improved slightly to 6.9% (from 7.0% in May) and the labour force participation rate rose to 65.4%. It’s too early to call this a trend—some of it may be explained by Canadians vacationing locally (trips to the U.S. are down ~30% this year) and supply chain reshuffling creating temporary domestic manufacturing jobs (+10,100 in June). Wholesale and retail added another 34,000 jobs.
But will that last? My main concern is real estate, which accounts for 20–28% of Canada’s GDP depending on how it's measured. We’re seeing a 30% surge in housing starts, but the bulk is rental-focused and concentrated in the Prairies and Quebec. In contrast, Toronto and Vancouver are 20% below their 10-year average, and in B.C., sales are down 25.8% from the long-term trend. With new project cancellations mounting, we may see a construction slowdown in 2026 unless buyers re-enter the market in force.
Inflation & Fixed Rates
Inflation remains a key reason why the BoC didn’t cut rates today. The April CPI reading of 1.7% was distorted by a temporary tax rebate—once adjusted, underlying inflation was closer to 2.3%. Surveys show many businesses plan to raise prices due to tariffs and shipping costs, suggesting inflation may climb further in coming months.
This is why the bond market has pushed fixed mortgage rates up recently, even as the BoC stays on hold. The central bank faces a dilemma: it needs to tame inflation expectations, but it also doesn’t want to worsen an economic downturn.
Higher rates won’t fix global supply issues. In fact, lower rates encourage investment, and this is where Canada is falling behind. Business investment per worker is just $14,687 in Canada vs. $26,751 in the U.S. That productivity gap is hurting wages, tax revenues, and our long-term growth. Boosting capital investment could be the win we need: higher productivity, better pay, lower inflation, and stronger public finances.
Quick Recap
The BoC held at 2.75% and sees no immediate recession (officially).
Inflation is above target once you strip out one-time rebates.
Trade uncertainty, no federal budget, and slowing real estate are red flags.
Fixed rates are rising due to inflation fears.
Canada needs to invest more per worker to boost productivity and close the U.S. gap.
What Does This Mean if You’re Looking to Buy?
Stable rates and economic uncertainty can create opportunities for homebuyers. Inventory is rising, competition is lower, and some sellers are more flexible. If your finances are secure, this might be a smart window to buy in a cooler, more balanced market.
Both fixed and variable mortgage rates are around 4.3%, far below last year’s peaks. And if rate cuts do resume later in 2025, variable rates could fall further by the time you close or renew.
That said, always make sure your income is stable and your budget has a buffer—especially if we do dip into a recession. But for many buyers, this could be a chance to negotiate better prices, take time to shop around, and avoid the stress of a bidding war.
Impact on Mortgage Rates and Payments
Variable-Rate Mortgages: Prime stays at 4.95%. No change in payment today, but possible cuts ahead if the economy weakens.
Existing Fixed-Rate Mortgages: No impact—your rate stays locked until renewal.
New Fixed Mortgages: Rates are trending up due to rising bond yields and inflation risks. Current offers are around 4.3%+, and could rise further, so consider locking in if you're shopping or renewing soon.
Final Thoughts & Call to Action
Today’s hold means no immediate change for most borrowers, but the bigger picture is complicated: inflation is sticky, recession risks are growing, and fixed rates are rising anyway.
Now more than ever, your mortgage strategy should be based on more than just rate. Whether you're buying, renewing, or refinancing, let’s find the right structure for your goals.
Let’s talk. Book your free consultation anytime or give us a call. We’re here to help you make sense of these updates and make smart mortgage decisions.
Sincerely,
Simon Bilodeau and Gina Lopez
604-828-9864
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