On June 4, 2025, the Bank of Canada (BoC) announced it would maintain its key policy interest rate at 2.75%, citing persistent economic uncertainty—particularly around international trade dynamics and evolving domestic indicators. The next interest rate decision is scheduled for July 30, 2025.
This marks the second consecutive rate hold by the BoC, following a series of cuts that concluded in March. As the economy shows signs of both resilience and vulnerability, the central bank has signaled a wait-and-see approach, with a continued focus on inflation trends, employment data, and global economic developments.
Policy Overview: June 2025 Rate Decision
The BoC confirmed the following in its June 4 announcement:
The previous rate cut occurred on March 12, 2025, when the bank lowered the benchmark rate by 25 basis points. The BoC has since paused further reductions to assess the broader effects of earlier policy moves and incoming economic data.
Drivers of the Decision: Global Trade and Domestic Conditions
The central bank highlighted several areas of concern influencing its decision to hold:
Global Trade Environment
Ongoing trade policy developments—especially those involving the United States—remain a significant source of uncertainty. On June 3, 2025, a new U.S. executive order increased tariffs on Canadian steel and aluminum to 50%. While some global tariffs have been eased in bilateral negotiations, many remain above early-2025 levels, and further actions are possible.
These developments have implications for Canadian exports, supply chains, and price levels. BoC Governor Tiff Macklem noted that such tariffs can exert downward pressure on growth while also creating cost-side inflation risks, depending on how businesses respond.
Domestic Economic Performance
GDP: Canada’s economy grew 2.2% in Q1 2025, slightly above expectations. However, the BoC anticipates a weaker second quarter, with forthcoming GDP data expected to clarify the pace of growth.
Labour Market: Employment indicators have softened. The unemployment rate has risen to 6.9%, with job losses concentrated in trade-exposed sectors.
Housing Market: Housing activity has declined, particularly in the resale market. May 2025 sales in the Greater Toronto Area dropped 13% year-over-year, according to the Toronto Regional Real Estate Board. National sales were down 10% in April.
Consumption: Consumer spending has moderated from its Q4 2024 pace but continues to grow. Consumer confidence, however, has weakened.
Inflation: Headline inflation for April came in at 2.3% (excluding tax impacts), slightly above the bank’s expectations. The removal of the consumer carbon tax contributed to a broader cooling, but core inflation measures (excluding food and energy) increased more than anticipated. These figures will be closely monitored in the coming CPI reports, with the May data due on June 24.
Impacts on Borrowers, Consumers, and Businesses
Mortgage Market
For Canadians with variable-rate mortgages, this decision means no immediate change in borrowing costs. Many are still opting for variable rates, anticipating the possibility of further rate cuts later in the year. Fixed mortgage rates have not adjusted as quickly and remain relatively stable.
Industry experts advise that while today’s rates are low by historical standards, borrowers—especially those up for renewal—should assess their options carefully. Lenders remain competitive, and shopping around may yield better terms. However, some caution that waiting for significantly lower rates may not be the most practical approach given market unpredictability.
Consumer Spending and Pricing
While household spending continues, concerns about higher prices tied to new tariffs are mounting. Businesses affected by import costs may adjust prices, which could pass on to consumers in the form of higher costs for goods and services. Households are also reporting concerns around affordability and purchasing decisions under the current economic climate.
Business Conditions
Lower interest rates can ease borrowing costs, which helps with cash flow and investment planning. However, small and medium-sized businesses continue to face pressure from higher operating expenses. A significant portion are absorbing increased costs into already tight profit margins.
Tariff-related supply chain adjustments, renegotiated contracts, and evolving import/export conditions remain major challenges, especially for manufacturers and retailers managing cross-border logistics.
Auto dealers, in particular, report elevated inventory levels compared to last year, making the cost of financing stock more burdensome under current interest rates. In this environment, many business leaders express a preference for stable trade relations over further rate reductions.
What Comes Next
Between now and the July 30 rate decision, the BoC will review two more inflation (CPI) reports and labour force surveys, as well as updated GDP data. These indicators will help shape the Governing Council’s view on whether another rate cut is warranted.
Economists at institutions such as BMO and CIBC suggest a rate reduction remains a possibility, especially if data shows continued economic cooling and if inflationary pressures ease. A potential 25-basis-point cut could be considered should those conditions be met.
Additional Considerations: Employment Rights
As economic conditions fluctuate, it’s important for Canadian workers—particularly those in non-unionized roles—to be aware of their rights in the event of job loss. Employees in British Columbia, Alberta, and Ontario may be entitled to up to 24 months of severance pay when terminated without cause. Even in cases where dismissal is labeled “for cause,” many employees may still qualify for full compensation under Canadian employment law.
For guidance on severance packages, layoffs, or workplace issues, legal consultation is available from firms specializing in employment law. Note that unionized employees must work through their union representatives, as employment lawyers cannot intervene in those cases.
Conclusion
The Bank of Canada’s decision to hold the policy rate at 2.75% reflects a complex mix of domestic and international factors. For consumers and businesses, the implications vary by financial situation, sector, and exposure to trade. As always, understanding how monetary policy intersects with personal or business planning is key to making informed decisions in a changing economic environment.
If you have questions about how rate policy may affect your real estate goals or financial planning, we’re here to help navigate the facts with clarity and care.
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