As widely predicted, the Bank of Canada maintained its policy interest rate at 4.5% today, marking the fourth consecutive hold since January’s quarter-point cut. While economic signals pointed toward potential easing, persistent inflation volatility and emerging trade tensions with the U.S. have created a cautious atmosphere at the central bank.
The decision arrives as Canadians continue feeling the pressure of elevated borrowing costs, with average mortgage payments up nearly 29% compared to pre-pandemic levels, according to data from RateHub.ca. For a typical homeowner with a variable-rate mortgage of $500,000, this translates to roughly $940 in additional monthly expenses.
“The Bank has signaled a willingness to cut rates, but they’re clearly waiting for more consistent inflation data,” explains Beata Caranci, Chief Economist at TD Bank. “While headline inflation has moderated, the underlying measures they watch closely have been stubborn.”
Indeed, Governor Tiff Macklem struck a measured tone in his remarks, acknowledging progress in the inflation battle while highlighting ongoing concerns. “We’re seeing encouraging signs in the overall inflation trend, but the path hasn’t been smooth,” Macklem said during the press conference. “When combined with emerging trade uncertainties, we believe maintaining our current stance remains appropriate.”
The decision comes amid renewed concerns about potential U.S. tariffs following President Biden’s recent executive orders targeting various imported goods. Canada’s export-dependent economy remains particularly vulnerable to trade disruptions, with approximately 75% of our exports destined for American markets.
For everyday Canadians, the rate hold means continued pressure on household budgets. Average credit card interest rates remain above 20%, while home equity lines of credit typically sit around 7.95% – significantly higher than the 3.7% average seen in early 2022.
The real estate market has responded accordingly. The Canadian Real Estate Association reports that national home sales activity has fallen 12.4% year-over-year, with average prices stabilizing but still 15.8% below the February 2022 peak in many urban markets.
“What we’re seeing is a reset in consumer expectations,” notes John Pasalis, President of Realosophy Realty in Toronto. “Buyers have adjusted to higher rates, but they’re waiting for more certainty before making major financial commitments.”
The Bank’s accompanying monetary policy report revised Canada’s 2024 growth forecast down to 1.2% from 1.5%, citing weaker-than-expected consumer spending and business investment. This tepid outlook aligns with Statistics Canada’s latest GDP figures, which showed the economy growing at just 1.7% in the first quarter – below consensus expectations.
For investors and market participants, the focus now shifts to the July meeting, which many economists view as a more likely opportunity for a rate cut. Overnight index swaps currently price in approximately 50 basis points of easing by year-end, suggesting markets anticipate two quarter-point reductions before 2025.
“The door remains open for July,” suggests Stephen Brown, Deputy Chief North America Economist at Capital Economics. “But the Bank clearly wants more evidence that core inflation measures are consistently tracking toward the 2% target before moving.”
The inflation picture itself remains complex. While headline inflation recently eased to 2.7%, down from 3.4% earlier this year, the Bank’s preferred measures of core inflation have been stickier. The average of the Bank’s three core inflation metrics sits at 2.8%, still above their 2% target.
Services inflation in particular continues to run hot at 4.2%, driven by wage growth and housing-related costs. This has offset progress in goods inflation, which has largely normalized after pandemic-era supply chain disruptions.
For small businesses, the rate decision brings mixed feelings. The Canadian Federation of Independent Business reports that 64% of its members cite interest costs as a major concern, yet many also worry about potential economic slowdown if rates are cut too aggressively.
“It’s a balancing act for business owners,” explains Julie Kwiecinski, Director of Provincial Affairs for Ontario at CFIB. “High rates increase operating costs, but they also want policy that ensures long-term economic stability.”
Looking ahead, the Bank of Canada finds itself navigating increasingly complex waters. Trade uncertainty, housing affordability concerns, and persistent services inflation create competing pressures on monetary policy.
The economic recovery from pandemic lows continues but remains fragile. Statistics Canada’s latest employment figures showed the unemployment rate ticking up to 6.1% in May, its highest level since January 2022, suggesting the labor market may be loosening faster than anticipated.
For Canadians planning major financial decisions in 2024, the message seems clear: while rate cuts are coming, the path forward will be gradual and data-dependent. Mortgage specialists are increasingly advising clients to prepare for a slow easing cycle rather than dramatic cuts.
“We’re telling clients to expect measured changes,” says Samantha Brookes, CEO of Mortgages of Canada. “The emergency-level high rates are likely behind us, but the days of ultra-low borrowing costs aren’t returning anytime soon.”
The Bank of Canada’s next interest rate announcement is scheduled for July 24, 2024, with a full economic outlook update to follow in October.
