Every time the Bank of Canada makes an interest rate announcement, there’s a wave of speculation—rate cut? rate hike? hold? But before jumping to conclusions, it’s worth stepping back and understanding why the BoC does what it does.
Here’s the key: when it comes to the overnight rate, the Bank of Canada has one core mandate—keep inflation between 1% and 3%, with a 2% target. That’s it. Their role isn’t to manage the housing market, support job growth, or stabilize the Canadian dollar. Their sole focus is inflation: where it is today, and where they believe it’s heading.
Recent Data Points: What’s Guiding Their Thinking?
Let’s look at what the BoC is seeing right now that led to their decision to maintain its overnight interest rate today at 2.75%:
1. GDP Surprised to the Upside Canada’s Q1 GDP came in at 2.2%—a much stronger number than many expected. While some of that strength may be temporary (companies restocking ahead of tariffs, for example), it still shows momentum. And with the economy growing, it’s hard to justify a rate cut. Many believe this growth is temporary, and future data will show an economy in decline.
2. Core Inflation Remains Stubborn While the headline inflation number dropped to 1.7%, core inflation—which strips out volatile items and is the BoC’s preferred measure—rose to 2.59%. That’s above target and moving in the wrong direction. For a rate cut to be on the table, inflation needs to show consistent, sustainable progress downward.
3. A Stronger Canadian Dollar The loonie has rebounded a bit in recent months. Cutting rates now would likely send it lower again. A weaker dollar increases the cost of imported goods, which can reignite inflation—something the BoC is actively trying to avoid.
What the Bank Isn’t There to Do
It’s important to remember: the Bank of Canada doesn’t set interest rates to influence real estate prices or provide relief for mortgage holders. That might feel frustrating, especially in a market that’s been correcting. But their job is to respond to economic data—not to proactively steer individual sectors of the economy.
The expectation that rate cuts should be used to “rescue” the housing market has grown in recent years, especially post-COVID. But central banks are meant to react to actual conditions—not speculative behavior. And while low rates during COVID may have conditioned Canadians to expect quick relief during downturns, that isn’t the norm.
Real Estate: A Market Finding Its Balance
We’re seeing a natural correction in real estate. Prices are softening, and sales are down. While this can be painful, especially for over-leveraged homeowners, it also creates opportunities for first-time buyers. What one seller loses, a buyer gains in affordability.
This transition may be uncomfortable, but it’s part of a healthier long-term reset. It allows inventory to move, wealth to shift, and future buyers to re-enter the market with more confidence.
Final Thoughts
The Bank of Canada will continue to follow the data. And unless inflation starts trending down consistently, particularly core inflation, rate cuts are unlikely in the near term. That said, as the economy continues to worsen, predictions are that at least two more rate cuts are forthcoming in the second half of this year. If you’re hoping for a quick drop in variable mortgage rates, staying grounded in the numbers that actually move policy is important.