Bank of Canada leaves target interest rate unchanged at 2.75% in July 2025 announcement
Trade ambiguity is keeping the Bank of Canada in a holding pattern – and that spells little interest rate relief for borrowers.
The central bank opted to leave its trend-setting overnight lending rate untouched for the third time in a row in its July 30th announcement, keeping the benchmark cost of borrowing at 2.75% where it has remained since March. As a result, the prime rate used by Canadian lenders will stay at 4.95%. Variable mortgage rates, which are priced at plus or minus a percentage from prime, will also remain unchanged.
The Bank’s lack of movement isn’t a surprise to economists; today’s rate hold was a sealed deal after the June inflation numbers came in stronger than expected. This is a key consideration for the BoC when determining its rate strategy; it uses its overnight lending rate as a lever to control inflation, hiking rates when the measure is running hot, and lowering them when the economy needs a boost.
“With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged,” states the press release accompanying the Bank’s decision.
The BoC emphasized just how unclear the outlook remains, and that it’s prepared to respond however the economic impact plays out – including a potential rate cut.
“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,” states the release. “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.”
Overall the Bank expects inflation to remain close to its 2% target through 2027, but that remains vulnerable to any upward effects tariffs could have on consumer prices.
Video: July 30, 2025 Bank of Canada rate announcement
Are future rate cuts coming?
As it currently stands, there’s little rationale for the Bank to add any stimulus via lower rates – while tariff threats remain a top concern, a Q2 survey data conducted by the BoC found businesses seem to be weathering the trade war better than expected, with “the worst-case scenarios that firms envisioned last quarter are now seen as less likely to occur.” A similar survey of consumers found that while households are tightening their belts and fearing job loss, inflation expectations have started to lower.
The labour market has also proved hardy, with the June jobs report showing the first uptick since January.
However, cracks are starting to form, as Canada’s GDP dropped in April, and likely will again in May. Sectors that are directly impacted by tariffs, including the auto sector and manufacturing, have seen workforce declines.
The Bank addressed these concerns in a refreshed scenario outlook; it expects GDP growth will contract in Q2, before recovering to 1% for the remainder of 2025, and rise to 2% by the end of 2027; this is an improvement from its previous call of 1.6% growth by the end of that horizon.
“Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy,” states the release. “These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve.”
In line with US rate policy
The BoC can also be influenced by how rates move in the United States. Its American counterpart, the US Federal Reserve, has also kept its benchmark rate unchanged as US inflation and jobs have surprised on the upside, removing any rationale for rate cuts. While pressure for a cut has been heaped on by President Donald Trump, it doesn’t appear the Fed will budge in the short term, including in its own rate announcement today, scheduled for 2 p.m. EST.
Typically, the Canadian and American central banks move in lockstep with their rate policy, as deviating too far from each other can devalue the Canadian dollar (which in of itself is inflationary). While the Canadian economy is the main factor directing the BoC’s rate, the fact that the Fed sits in its own holding pattern gives it more breathing room to do the same.
What does this mean for mortgage borrowers?
Variable-rate mortgage borrowers
Today’s latest rate hold means interest rates won’t change for those holding variable-rate mortgages; that means their monthly payments, and the amount of their payment that goes towards servicing interest, will remain the same. Variable mortgage rate pricing will also stay stable for the time being, with the current lowest five-year variable term in Canada at 3.95%.
However, variable mortgage borrowers have seen some considerable rate relief over the past year; this new rate hold cycle follows a series of seven cuts that took place between June 2024 and March of this year; overall, they brought the overnight lending rate down by 225 basis points, from its peak of 5% .
Fixed-rate mortgage borrowers
Bank of Canada rate announcements don’t directly impact fixed mortgage rates, but they can influence the price of bonds, which lenders use to underpin their fixed-rate pricing. Usually, bond yields fall when investors feel confident that inflation will lower, and that there’s overall little risk present in the economy – but they certainly haven’t felt that way for some time. The ongoing volatility from Trump’s trade war has kept yields firmly elevated, both north and south of the border. The five-year Government of Canada bond yield hasn’t fallen below the 2.8% mark since mid-May, and has stuck above the 3% mark since July 11. Fresh qualms over whether Canada would ink a trade deal with the US caused it to shoot up to 3.13% on July 15th – a six month high.
That most recent increase prompted lenders to increase their fixed mortgage rate, with the lowest five-year fixed option in Canada now at 3.89%. Further increases are on the table, should further trade surprises push bond yields higher.
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How will today’s rate hold impact the housing market?
The Canadian housing market has weathered a frigid spring, as would-be buyers chose to wait out tariff volatility and economic unease. However, the latest June national numbers suggest this is starting to thaw, as home sales picked up 3.5% compared to last year, and 2.8% from May. This is largely due to a combination of lower mortgage rates, and improving sentiment among buyers, that the trade situation is stabilizing.
Today’s rate hold won’t further improve real estate buying conditions, but it may add a new level of urgency to the market for buyers to take advantage of today’s interest rates while they last; with economic factors pointing to stagnant, or even higher, rates in the future, it’s a good idea for anyone rate shopping or renewing their mortgage to take out a rate hold or full pre-approval now, to guarantee access to today’s rates.
The impact on banking products and investments
Mortgages aren’t the only financial product impacted by the BoC’s moves; today’s rate hold will also mean interest rates will stay unchanged for other types of loans including lines of credit, HELOCs, personal loans, and car loans; all of these are also priced based on the prime rate, and by extension, the BoC’s overnight lending rate.
The prime rate also impacts the rate of return for savings and investing products including high-interest savings accounts and guaranteed investment certificates (GICs) – these will remain stable for the time being with GICs in particular still offering attractive rates. It’s a rare “safe haven” investment, as stock and bond markets grapple with the ongoing trade uncertainty plaguing our economy.
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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.