The Bank of Canada held its overnight policy rate at 2.25 per cent this morning. In the statement accompanying the decision, the Bank noted that US trade restrictions and uncertainty continue to disrupt growth in Canada. The Bank projects modest near term economic growth as population growth slows and businesses adjust to a new trade environment. The Bank forecasts the Canadian economy will expand by 1.1 per cent this year and 1.5 per cent in 2027. On inflation, the Bank expects price growth to stay close to its 2 per cent target over the next 8 quarters, with trade-related cost pressures offset by slack in the economy.

Better than expected economic data through the end of 2025 shifted policy expectations toward a rate increase from the Bank of Canada in 2026 and put upward pressure on long-term yields and mortgage rates. However, there are enough headwinds from the global economy including a sharp decline in the US dollar and renewed tariff threats from the Trump administration that it is very unlikely the Bank will be tightening this year. Given an economy with weak growth and inflation at target, our stance remains that the Bank will be on hold throughout 2026, though mortgage rates may stay somewhat elevated relative to the overnight rate due to a higher risk premium being priced into medium and long-term yields.

Copyright British Columbia Real Estate Association. Reprinted with permission.