Making sense of the Bank of Canada interest rate decision on June 4, 2025

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%.

Sentiment around the interest rate decision 

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 States and inventory accumulation boosted activity, with final domestic demand roughly flat.”

“The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued.”

Overall, this led the Bank to hold off on adding more stimulus to the economy now, and to keep its rate cuts on reserve until the economy shows further signs of stress. 

“With uncertainty about U.S. tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on US trade policy and its impacts,” reads the BoC’s statement. “We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.”

It is currently expected that the central bank will cut its rate twice more in 2025, delivering another 50 basis points in stimulus, eventually bringing its trend setting rate to the 2%-to-2.25% range.

Read more about my take on the rate hold on ratehub.ca.

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What does the BoC rate announcement mean to you?

A rate hold means there’s little change in store for Canada’s rate pricing environment, but there are a few trends Canadians should keep an eye on. Let’s break down the impact on borrowers, savers and investors.

The impact on Canadians with a mortgage

This latest rate hold means interest rates are stuck in a holding pattern, especially those linked to lenders’ prime rates, such as variable-rate mortgages, home equity lines of credit (HELOCs), and other types of loans.

The impact on variable-rate mortgages

Variable-mortgage rates holders, though, are most directly impacted; as the prime rate won’t change, neither will their interest rates, which are priced as plus or minus a percentage to prime. This means monthly payments will remain stable, as will the amount of that payment going toward servicing interest costs and paying down the principal mortgage amount.

The impact on fixed-rate mortgages

Fixed-mortgage rates also look to remain stagnant for the foreseeable future; while not directly impacted by the central bank, they are largely influenced by it via the bond market. This is because bonds make up a chunk of the investments held by lenders, and they largely base their pricing for five-year fixed rates on the Government of Canada five-year bond.

When bond yields (the payment bond investors can expect at the end of their term)  are considered low, lenders have room to discount their fixed mortgage rates. Yields tend to drop when investors feel confident that inflation will remain low, and have overall strong trust that the bond issuer—in this case the Canadian government—is economically sound.

However, Canada’s benchmark bonds are being heavily impacted by what’s happening south of the border. After President Donald Trump’s constantly moving tariff announcements caused extreme upheaval in the markets, investors fled the U.S. 10-year Treasury—an important global benchmark bond. 

As a result, the 10-year Treasury yield, and Canadian GoC five-year, have been elevated since mid-April, and have been largely unresponsive to additional economic data. 

This tells us that investors will be wary and bond yields will stay high, propping fixed rates up along the way, until tariff pressures and inflation fears fade for good. Currently, the lowest five-year fixed insured mortgage rate in Canada is 3.84%. That’s still very competitive compared to rate pricing at the start of the year, but unlikely to fall much lower in the coming months unless bond yields materially shift.

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What does this mean for renewals?

If you’re shopping around for the best mortgage rate, either to buy a new home or to renew your mortgage, time is of the essence to ensure you have the most options. Getting a rate hold for a fixed mortgage rate or to preserve the spread to prime on a variable are ways to ensure you have access to today’s rate pricing. Should rates increase in the near term, you’ll be protected, while still being able to get lower rates should they drop.

Check out the real-time rates below to see the current status (and effects) of mortgage rates in Canada.

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What does the rate cut mean if you’re an investor?

As mentioned above, the tariffs have taken investors in Canada and around the globe on a wild ride since the start of 2025—and they are fatigued. 

While stock markets have largely regained from the lows they hit in March and early April, the evolving tariff narrative has made for a murky outlook. This has caused real pain in everything from retirement portfolios to crypto funds. Canadian investors may be questioning whether now is the right time to reduce their exposure to U.S.-based assets, or pivoting from industries that will be heavily impacted by tariffs.

Two old investing adages hold up here: “time in the market is more important than timing the market,” and “don’t panic.” Offloading stocks may lead to crystallized losses, and, depending on where you are in your investing journey, returns are likely to regain ground in the long term. It’s always a great idea to work with an independent financial advisor in times of market volatility, who can help you plot a strategy depending on your own financial needs.

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What does the rate cut mean for your savings?

While mortgage rate shoppers may begrudge the BoC’s inactivity, savers have the most to gain; as the rate of return on products, such as high-interest savings account or guaranteed investment certificate (GIC), are also based on prime, those with passive savings will continue to enjoy stable interest rates, for example, up to 5% on a GIC term.

How long the current rate environment lasts remains to be seen, however, as the fate of interest rates remain in the hands of inflation—and tariff surprises.

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Read more about interest rates:

The best variable mortgage rates in Canada The best variable mortgage rates in Canada The best GIC rates in Canada Bonds vs. GICs: Where should you invest your fixed-income dollars?

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