Bank of Canada holds target interest rate at 2.25% for fifth time in a row in June 2026 announcement
Key takeaways
- The Bank of Canada has held its benchmark interest rate at 2.25% for the fifth consecutive time.
- As a result, the prime rate at Canadian lenders will remain 4.45%.
- The interest rate for prime-linked products such as variable-rate mortgages, HELOCs, and some loans will remain unchanged. The rate of return for some savings and investing products such as GICs and HISAs, will also remain the same.
The Bank of Canada has once again opted to keep borrowing costs stable, against an increasingly volatile economic backdrop. The central bank held its overnight lending rate – which is used to set lenders’ prime rates and, by extension, variable-rate borrowing products – at 2.25%, where it has remained since October 2025.
Due to this fifth consecutive rate hold, the prime rate used by consumer lenders will stay at 4.45%. That means the interest rates for various prime-linked borrowing products – including variable-rate mortgages, HELOCs, and some types of personal loans – will remain unchanged. This will also be the case for investing and savings vehicles that are based on prime rates, such as Guaranteed Investment Certificates (GICs) and high interest savings accounts.
Was this latest Bank of Canada rate hold expected by markets?
This latest rate hold was widely anticipated by markets and economists, despite mixed economic data leading up to the announcement; the Bank has had to carefully weigh both positive and negative signals when determining the right path forward for interest rates. These include a stronger-than-expected May labour market report which showed the economy added 88,000 positions last month, as well as the latest inflation data, which shows price growth rose sharply from 2.4% to 2.8% in April; on their own, both of these reports could spell an argument for the Bank to increase its trend-setting rate.
On the other hand, however, are persistent headwinds that call for caution; the ongoing conflict in Iran remains a top concern for the Bank, as does uncertainty around the renegotiation of CUSMA; should a broader swath of Canadian goods lose their tariff-exempt status, it will cause fresh economic upheaval for the nation.
“The conflict in the Middle East is now in its fourth month,” states the press release accompanying the Bank’s rate announcement. “The resulting increases in energy prices and disruptions in global supply chains are weighing on global economic growth and pushing up inflation. At the same time, the US administration continues to propose new tariffs and trade policy uncertainty remains elevated.”
The Bank has also had to take into account the latest GDP report, which reflected two consecutive quarters of economic contraction – meaning the Canadian economy can now be defined as being in a technical recession. However, the Bank emphasized that it expects growth to pick back up in the second quarter of this year. It will continue to see through this and other temporary shocks, as long as there aren’t other economic surprises that jolt its outlook – or if inflation starts to grow out of control.
“Against this overall backdrop, Governing Council decided to maintain the policy rate at 2.25%,” states the Bank’s release.
“Economic activity in Canada has been weak and uncertainty about US trade policy persists. The conflict in the Middle East is ongoing and oil prices remain elevated. Governing Council is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation. As the outlook evolves, we stand ready to respond as needed. The Bank is committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.”
How will this latest rate hold impact my variable-rate mortgage?
That the Bank has held its trend-setting rate again means extended stability for anyone who already has a variable-rate mortgage; these borrowers won’t see any change in their interest rate, monthly payment, or the amount of their payment that services interest.
For anyone shopping for a variable rate, it’s a mixed message. While a hold means rates won’t be going down – and likely won’t for the remainder of the year, based on the Bank’s latest commentary – current variable rate pricing remains the lowest in Canada. Right now, the lowest available five-year variable term is 3.35% – a difference of 69 basis points to the lowest five-year fixed rate of 4.04%. On a $500,000 mortgage, that works out to $182 less paid monthly.
However, given the Bank continues to grapple with inflation pressures due to high prices from the Strait of Hormuz closure, there is a chance variable rates could increase by the end of 2026, or in early 2027. Anyone considering a variable mortgage should ensure they have room in their budget to shoulder higher monthly payments, and the overall risk tolerance for how the Bank’s view may evolve.
How does a Bank of Canada rate hold affect my fixed-rate mortgage?
On paper, it doesn’t; the Bank of Canada’s rate only directly influences Canadian prime rates, and by extension, variable mortgage rates. However, that doesn’t mean fixed rates are immune to the Bank’s rate decisions – in fact, they’re quite exposed to monetary policy through reactions to it in the bond market.
Because fixed mortgage rate pricing is based on bond yields – and bond investors tend to push yields higher when they expect higher central bank rates – today’s latest rate hold will likely do little to move the dial on fixed rates. Markets have already well-priced in the Bank’s rate hold, as well as expectations that the U.S. Federal Reserve – the BoC’s American counterpart – will also likely keep rates elevated for the foreseeable future.
While bond yields and fixed mortgage rates rose aggressively throughout April and early May – with the latter increasing between 25 - 40 basis points across Canadian lenders – they’ve since stabilized. Fixed rates will likely remain stagnant unless there’s considerable progress made in ending the Iran war, or opening the Strait of Hormuz back up.
How will the June BoC announcement impact Canada’s housing market?
After months of chilly conditions, Canadian real estate sales ticked up modestly in April, up by 0.7%, with the data suggesting signs of stabilization.
However, many buyers are still being weighed down by economic uncertainty; there’s nothing like a technical recession to erode consumer confidence. It’s tough for buyers to commit to a large financial decision in the current environment.
That said, as it becomes more clear that interest rates won’t be meaningfully decreasing any time soon, there’s a growing narrative that the market has reached its bottom in terms of pricing and overall affordability. That may give already motivated buyers the push they need to finally step off the sidelines. There’s already evidence of heating conditions in local markets; the latest data from the Toronto Regional Real Estate Board shows Toronto home sales soared by 10% between April and May, and up 6.3% year over year.
Whether or not buyers continue to enter the market will depend largely on their confidence – and their reaction to where interest rates may trend next.
Also read:
Penelope Graham, Head of Content
Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.