What the Bank of Canada’s rate hold could mean for you

Key Takeaways:

• The Bank of Canada (BoC) just held its lending rate at 2.75%
• The hold is the central bank’s second rate pause of 2025
• The BoC’s lending rate influences the interest rates banks charge on financial products such as mortgages and loans

Canada’s central bank decided to hold its lending rate steady at 2.75% at its June 4 rate announcement.

The pause is the Bank of Canada’s (BoC) second rate hold of 2025, and comes after two back-to-back rate cuts in January and March.

In its decision to hold its lending rate, the BoC said: "With uncertainty about U.S. tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on U.S. trade policy and its impacts. 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."

According to Andrew Hencic, Director and Senior Economist at TD Economics, the hold signals that the BoC isn’t ready to cut rates just yet as the economy grew more than expected in the first quarter of 2025, and core inflation has ticked higher.

However, the BoC could cut its rate at some point this year, Hencic said, pointing out that the private sector has lost more than 70,000 jobs in the past two months.

“Underlying inflation pressures have made the central bank's mission a little more complicated, but with the labour market showing signs of stress, we think that there's room to deliver two more cuts by the end of the year,” he said.

What a rate hold could mean for Canadians

The BoC’s lending rate is used as a benchmark by financial institutions, such as banks, to set interest rates on financial products. These include mortgages, personal loans, and business loans.

So, when the BoC cuts its lending rate, it can become cheaper to borrow money. And when the BoC’s lending rate goes up, it can become more expensive.

When the BoC holds its lending rate, not much changes for Canadians. For Canadians with both variable rate mortgages and fixed rate mortgages, things will remain status quo.

Will the BoC cut its lending rate further in 2025?

Hencic said that TD Economics believes the central bank could cut its lending rate two more times in 2025.

Based on current economic data, TD Economics is of the view that the BoC could likely reduce its lending rate by 25 basis points twice this year, though the exact timing of those potential rate cuts is up in the air.

“The cumulative effect of 2024’s interest rate cuts are starting to peter out a little bit, especially under the weight of all our current economic uncertainty,” Hencic said.

“TD Economics’ view is that there is space for the BoC to deliver two rate cuts in the coming months to support the economy.”