The Bank of Canada held its overnight policy rate at 2.75 per cent this morning.  In the statement accompanying the decision, the Bank noted that pervasive uncertainty makes it unusually challenging to project GDP growth and inflation in Canada. The Bank sees two potential scenarios for the Canadian economy, either high but limited tariffs that temporarily weaken growth or a protracted trade war that causes both a full recession and inflation to rise above 3 per cent. The Bank is already seeing signs of a slower economy due to the impact of uncertainty on consumer and business confidence, but expects tariff driven supply chain disruptions will put upward pressure on prices later this year. Perhaps most importantly, the  Bank ended its statement with the following: "Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What it can and must do is maintain price stability for Canadians."

Improvement in the rate environment over the past year was starting to provide a jolt to home sales prior to Trump’s tariff announcements, and the swirling uncertainty around each successive tariff announcement has further clouded the economic outlook. The Bank of Canada’s most recent messaging has been focused on concern with the inflationary effects of tariffs, and those concerns may somewhat constrain the Bank’s ability to lower rates further even in the face of a weakening economy. Moreover, financial market volatility has pushed US government bond yields higher, which is also putting some upward pressure on Canadian interest rates. The 5-year bond yield, while volatile, has been on an uptrend that, if sustained, will lead to slightly higher 5-year fixed mortgage rates.

Read more about the outlook for mortgage rates here: Mortgage Rate Forecast - British Columbia Real Estate Association

For more information, please contact: Gino Pezzani.