It's a hold: The Bank of Canada just held its interest rate. Again.
It's another interest rate hold, announced the Bank of Canada today.
For the seventh time in a row, the central bank told Canadians it would be holding its interest rate steady at 2.25%.
In its announcement, the BoC said, "The continuing conflict in the Middle East is keeping energy prices high. As well, new US tariffs and Canadian counter-measures have been announced following the breakdown of trade talks between Canada and the United States. Both situations remain fluid."
"The Bank’s decision to hold rates steady comes as little surprise," said TD Economist Marc Ercolao.
“Stronger-than-expected Q2 GDP growth reduced the case for additional rate easing, while underlying inflation pressures remain generally contained, leaving little justification for rate hikes," said Ercolao.
“At the same, the BoC acknowledged that escalating trade tensions between Canada and the U.S. have increased uncertainty around the outlook, reinforcing a cautious and data-dependent stance. We expect the Bank to stay on the sidelines and hold the rate through the remainder of the year, though BoC policymakers have signaled a willingness to adjust rates should growth or inflation deviate materially from their forecasts.”
What does a Bank of Canada interest rate mean for Canadians?
The BoC interest rate is a benchmark rate for financial institutions, such as banks, which they use to set interest rates on their lending products. Think: loans and mortgages.
When the BoC cuts its interest rate, it can become cheaper to borrow money. Conversely, when the BoC’s hikes its rates, it can become more expensive.
If you have a variable rate mortgage, or another type of variable rate loan, you could see your interest rate fluctuate should the BoC cut or hike its rates. When the BoC holds, your interest rate usually does not change.
If you have a fixed rate mortgage, your interest rate is locked in for the duration of your mortgage term, so the BoC's interest rate announcements would not influence your loan's current fixed interest rate.
How does the Bank of Canada set its interest rate?
The Bank of Canada uses a robust process to set its policy interest rate at eight scheduled announcements each year, each spaced roughly six to seven weeks apart.
The BoC's goal is to keep inflation in Canada around 2%. According to the BoC, the economy runs close to its capacity when inflation is around 2%. The policy interest rate is one tool the BoC uses to maintain this 2% inflation target.
The BoC writes that if the economy is growing too slowly, inflation can fall below 2%. When inflation is too low, it can signal a potential economic downturn. This is when it might consider an interest rate cut. With a lower interest rate, Canadians tend to spend – and borrow – more money. Conversely, when inflation is increasing – like it did in 2022 – the BoC might raise interest rates to help bring inflation back to the 2% target.
