Columns

By Penelope Graham on June 4, 2025
Estimated reading time: 8 minutes

Created By

Ratehub.ca

By Penelope Graham on June 4, 2025
Estimated reading time: 8 minutes

How another rate hold from the Bank of Canada will impact Canadians, and what to know whether you’re a borrower, investor or saver.

There’s not much action in store for Canadian interest rates, as the Bank of Canada (BoC) left its benchmark cost of borrowing unchanged in its latest rate announcement on June 4.

The central bank opted to keep its overnight lending rate—which is used by lenders to set their prime rate and, by extension, variable mortgage rates—at 2.75%.

This is the BoC’s second consecutive rate hold, following a rate pause on Apr. 16. Prior to that, the BoC had steadily decreased its rate via a series of seven rate cuts between June 2024 and March 2025. Altogether, those decreases lowered its overnight rate by 225 basis points, from a previous high of 5% to the 2.75% we have today.

As a result, the prime rate used by Canadian lenders will also remain unchanged, at 4.95%.

This latest BoC rate hold was largely expected by economists. But the move (or non-move) posed a challenge to the BoC, as tariffs continue to muddle the economic outlook. The data that the Bank considers when making a rate decision have also given mixed signals.

The latest April inflation report, while showing a promising headline number at 1.7%, revealed that the core measures of inflation (such as the median measure of the CPI basket) had risen to above 3%. That’s bad news for the BoC, as it indicates higher consumer prices are indeed becoming entrenched due to tariffs. The reading was higher than the BoC’s forecast, and likely enough rationale for the Bank’s Governing Council to opt for another rate hold.

On the other hand, though, the Canadian economy is starting to show signs of weakness. The latest quarterly Gross Domestic Product (GDP) report showed that while it increased by 2.2% last quarter (again, stronger than expected) it was due to a temporary front-loaded effect on exports, as businesses rush to stockpile inventories ahead of the full brunt of tariffs. Once this effect fades, Canadian economic growth is expected to chill in the coming months.

“In Canada, economic growth in the first quarter came in at 2.2%, slightly stronger than the Bank had forecast, while the composition of GDP growth was largely as expected,” states the BoC’s press release about the rate hold. “The pull-forward of exports to the United........

© MoneySense