Bank of Canada Holds Rate at 2.75% – What This Means for You
- Simon Bilodeau
- 1 hour ago
- 5 min read
This morning, June 4, 2025, the Bank of Canada (BoC) announced its decision to maintain the overnight rate at 2.75%. This marks the second consecutive hold following a series of rate cuts totalling 2.25 % cut since June 2024. The next meeting will be held on July 30, 2025.
Economic Landscape: The decision from the BoC was a coin toss. They chose to keep the rate constant because the data had not deteriorated as they had expected. In my opinion, this is a mistake because the economic landscape of Canada is on uncertain ground at best. They should have started to reduce the rate today to avoid having to do it more in the future. The BoC is driving Canada’s economic bus looking in the rearview mirror instead of through the windshield. Here are a few examples of past data that will deteriorate in the near future:
GDP Growth: Canada’s economy grew at an annualized rate of 2.2% in Q1 2025, surpassing expectations. This growth was primarily driven by businesses accelerating exports ahead of anticipated U.S. tariffs. So, a lot of the economic activity that was supposed to happen in the first half of the year happened during the first quarter. This makes the first quarter look good, but what will happen in the second quarter? This is going to fall off a cliff. We also saw consumer spending slow down significantly to 1.2% growth from 4.9% in the last quarter of 2024. Durable goods also contracted 5.6%. Durable goods are long-term purchases like cars, appliances, and electronics. Unless there is a sharp change in Canadian confidence, this data will continue to deteriorate.
Inflation Trends: Headline inflation cooled to 1.7% in April, influenced by the removal of the consumer carbon price. However, core inflation measures have edged higher, with some exceeding the Bank's 1–3% target range, signalling persistent underlying price pressures. This is a side effect of the tariffs the USA has launched against the world and the retaliatory tariffs put in place. This “sand in the cogs” of the global supply chain will create problems in producing the goods and services that we consume, raising their costs. This is inflationary, but interest rates do not affect this. The BoC has no control over this. Keeping rates high just depresses economic growth by reducing consumption, which in turn reduces the number of jobs and increases unemployment.
Labour Market: The national unemployment rate has risen to 6.9%, a sharp increase since May 2022 when interest rates started to rise. The unemployment rate is a lagging indicator. Businesses do not cut jobs in anticipation of bad times. There is a cost to hiring and training employees, so they try to keep them for as long as they can. They cut jobs after some time of bad data and an anticipation that things won't improve in the short term. 6.9% is far from catastrophic, but it’s also far from the full-employment level of 4%. As shown in Figure 1, the trend is not our friend.
Debt Delinquency: Car loan delinquency rates continue to increase. The rate rose from 1.47% to 1.51% in March (latest data). Credit card delinquency rose 20%, reaching 1.43%. Mortgage delinquency also rose to 0.19% (a 6.5% increase) during the first quarter. Consumers are starting to feel the pinch of a slowing economy. There’s no major concern yet, especially in the mortgage market. For example, in Ladner (the town where I live), there are about 8,300 homes; 50% have no mortgage (BC-wide statistic). So, 4,150 homes have a mortgage. This means that only 7 or 8 households (0.19%) are delinquent for more than 90 days on their mortgage. There is a high likelihood that the owners are either dead, have a long-term illness, getting a divorced and a few may have lost their jobs. Canadian are very good at paying their mortgage first, and I do not believe this will change anytime soon. At those levels, this will not trigger a large change in the housing market. However, car and credit card loans will make everyone start to pay down their debt. Which they are already doing since the beginning of the year, which will slow down the economy. (the good and bad of paying down debt for the economy is a long piece on its own, requiring further discussion)
Mortgage Renewal Cliff: This is a subject mostly forgotten by the media, but there are still 4 million mortgages (60% of all mortgages) due for renewal in the coming 24 months. The BoC’s Financial Stability Report of 2025 states that the average increase in payments will be 8%. That seems low—and here’s why: If you had a mortgage at around 2% and now you are getting a rate around 4% (typical for most 5-year fixed taken in 2020, 2021, and early 2022), you will see an increase of about 20% in your payments. The highest I calculated for a client so far was 26%. It is possible that some people will see larger increase. For those who took a 3-year fixed at 6% two years ago, you’ll see a decrease—much easier to handle. So, the average seems okay, but individually it might not be. This increase is manageable for most homeowners, but it will likely result in lower consumption: fewer restaurant dinners, no new TV, maybe delaying a car purchase, or scaling back a home renovation. This is bad for the economy and a drag that will persist for some time. Every year, people get raises, so if inflation remains under control at 2%, people will get their purchasing power back in the coming years—and this issue will fade. This may take a few years to sort itself out.
Real Estate Market As of April 2025, British Columbia’s real estate market is experiencing a slowdown in sales activity, accompanied by a rise in available inventory. Here’s an overview:
Home Sales: BC recorded 6,453 residential unit sales through MLS® systems—a 14.6% decrease compared to April 2024. This is a 20-year low.
Average Home Price: $1,012,000, a 2.3% decline from the same month last year.
Active Listings: 31,000 active listings—a 28% increase from April 2024—indicating a shift towards a more balanced market.
This means buyers have a good edge: they can negotiate prices, secure financing conditions, and choose closing and possession dates that align with their needs. Buyers are less likely to face bidding wars. For first-time buyers, this is a great time to start looking.
What Does the BoC Announcement Mean for You?
Variable-Rate Mortgage Holders: Your rates remain unchanged for now. However, cuts of 0.5–0.75% are still forecasted for the rest of the year.
Fixed-Rate Mortgage Holders: Your current rates are locked in—no change for you.
Prospective Homebuyers: The current rate hold provides a stable environment for planning your purchase, but do not wait for too long and try to time the bottom of the market. You may wait for the same signal has everyone else, and you risk trying to buy in a far less favourable environment.
The BoC’s next rate announcement is scheduled for July 30, 2025. Given the evolving economic landscape, it’s essential to stay informed and prepared for potential changes that could impact your mortgage and financial planning.
If you have questions about how these developments affect your mortgage, or are considering refinancing or a purchase, feel free to reach out. I’m here to help you navigate these changes and make informed decisions. Use the link below to book an appointment:
Sincerely,
Simon Bilodeau and Gina Lopez
604-828-9864