In a significant move for Canada’s economy, the Bank of Canada announced on April 16, 2025, that it would keep its key policy rate steady at 2.75%. This decision marks the first time the central bank has opted not to change the benchmark rate after implementing seven consecutive cuts since June of the previous year. The pause comes amid ongoing concerns regarding the potential impacts of U.S. President Donald Trump’s trade policies on the Canadian economy.
Victor Tran, a mortgage and real estate expert at Ratesdotca, stated, "The housing market overall has been sluggish for months, with a spring market that is much more muted than in previous years." He emphasized that the current economic climate is not inspiring consumer confidence in making significant purchases, such as mortgages for homes. Tran noted that the Bank of Canada’s decision to hold rates steady would likely keep the housing market in a stagnant state.
The national home sales had shown signs of recovery late last year, following some rate cuts, and economists had initially predicted an uptick in activity throughout 2025. However, uncertainties stemming from the U.S.-Canada trade war have dampened those expectations. Penelope Graham, a mortgage expert at Ratehub.ca, pointed out that homeowners with variable-rate mortgages would see no changes in their payments due to the bank's decision. "Today’s rate hold will do little to re-incentivize homebuyers, who have been increasingly hesitant to enter the market amid tariff uncertainty," she explained.
On the same day, the Bank of Canada acknowledged the unexpected dip in the consumer price index (CPI) to 2.3% in March, which was lower than economists’ projections of 2.6%. This decline in inflation rates contributed to the decision to maintain the current interest rate. Despite the CPI drop, analysts had anticipated a roughly 50% chance that the Bank would leave rates untouched, especially given the recent 25-basis-point cut in March.
The Bank's decision to pause its rate-cutting path reflects a careful balancing act. Central bank officials have expressed the need to weigh the potential negative economic impacts of Trump’s tariffs—which include steep levies on Canadian steel and aluminum—against the upside risks to inflation. This cautious approach comes at a time when about 32% of surveyed firms expect the economy to enter a downturn, a significant increase from 15% in the fourth quarter of 2024.
Leading banks in Canada, including TD, Royal Bank of Canada (RBC), and Canadian Imperial Bank of Commerce (CIBC), have projected that the benchmark rate could drop to 2.25% by the end of 2025. In contrast, the Bank of Montreal (BMO) and National Bank foresee a decline to 2% before January 2026. However, the future trajectory of interest rates remains uncertain, particularly with the ongoing volatility in the bond market.
Tran highlighted that housing market activity could pick up if analysts' forecasts of two more cuts later in the year come to fruition. Such cuts would lead to lower variable mortgage rates, potentially encouraging more buyers to enter the market. However, he cautioned that purchasing trends will be significantly influenced by broader economic conditions, which remain unclear.
As the Bank of Canada navigates these turbulent waters, the implications for the housing market and the economy at large are profound. The current environment of trade tensions and fluctuating inflation rates creates a challenging backdrop for consumers and investors alike. With the status quo maintained on interest rates, many potential homebuyers may continue to hold off on making significant financial commitments.
The real estate landscape in Canada continues to be characterized by uncertainty, as consumers grapple with the implications of tariffs and economic forecasts. Experts recommend that those shopping for mortgages or nearing renewal consider seeking pre-approval to lock in today’s rates for up to 120 days, providing a buffer against potential short-term rate fluctuations.
In summary, the Bank of Canada’s decision to hold its key policy rate at 2.75% reflects a cautious approach in the face of economic uncertainty. While the housing market remains sluggish, potential future rate cuts could offer a glimmer of hope for homebuyers, provided that broader economic conditions stabilize.
