Bank of Canada holds target interest rate at 2.75% in April 2025 announcement

Canadian borrowers who were keen to see interest rates fall will need to wait a little longer for relief.

This morning, the Bank of Canada announced it was holding its trend-setting rate unchanged at 2.75%, breaking the streak for what would have been the Bank’s eighth consecutive decrease. Instead, the Overnight Lending Rate – which lenders use to set their prime rates and – by extension, variable-based borrowing products such as variable-rate mortgages, HELOCs, and other loans – won’t change. The prime rate will remain unchanged at 4.95%, along with the lowest five-year variable mortgage rate in Canada at 3.95%.

Inflation the ultimate deciding factor behind hold

Unlike previous announcements, where the data laid out the Bank’s likely rate path, today’s outcome kept analysts guessing, with the chances of either a hold or a cut nearly evenly split.

However, in the release accompanying its rate hold announcement, the Bank made it clear that while roiling economic uncertainty has made it “unusually challenging” to forecast economic growth, it remains laser-focused on keeping inflation in hand, prompting today’s hold.

“Governing Council 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,” the Bank states. “Our focus will be on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. This means we will support economic growth while ensuring that inflation remains well controlled.”

The Bank acknowledged March’s softer 2.3% inflation print, but noted it was still higher than the 1.8% recorded in January. It added that while higher inflation is partly due to the end of the GST / HST holiday that took place between December and February, the removal of the carbon tax and lower global oil prices could help chill the measure in the months to come. But tariffs continue to be the wild card, and could upend this cooler outlook.

“[We] expect tariffs and supply chain disruptions to push up some prices. How much upward pressure this puts on inflation will depend on the evolution of tariffs and how quickly businesses pass on higher costs to consumers,” states the Bank. “Short-term inflation expectations have moved up, as businesses and consumers anticipate higher costs from trade conflict and supply disruptions.”

The likelihood of either a rate hold or cut has flip-flopped several times over the past month, alongside the evolving trade war scenario. Chances of a cut had initially soared on April 2nd, following Donald Trump’s rollout of 50% reciprocal tariffs on a number of countries, along with a 10% baseline levy. While Canada was spared the brunt of these reciprocal tariffs, fears of a global economic slowdown, and historic stock market slide, had most analysts expecting the BoC to err on the side of stimulus.

Odds then shifted closer to a hold when Mr. Trump announced a 90-day tariff delay just seven days later, on April 9th. But then, yesterday’s softer-than-expected Canadian March inflation numbers, which showed the Consumer Price Index rose by just 2.3%, once again increased the chances of a cut; however, according to a Bloomberg survey of economists, 17 out of 30 still leaned toward a rate hold today.

What’s next for the Bank of Canada’s rate?

Given tariff threats continue to cause market upheaval – and information whiplash – the BoC’s rate outlook remains uncertain. At the start of 2025 – the early days of the developing tariff narrative – it was thought that the BoC would cut rates aggressively if needed to prop up the Canadian economy, perhaps bringing the rate as low as 1.5%. This approach would eschew the Bank’s mandate to keep inflation at 2%, despite the anticipated price increases from tariffs.

However, BoC Governor Tiff Macklem has scuttled those forecasts, making it clear in a number of previous speeches that central bank rate policy cannot counter the effects of tariffs alone, with the federal government stepping in to provide expansive fiscal support. Instead, Macklem has emphasized that the Bank will remain reactive to what’s needed in the moment, rather than a long-term data picture.

In today’s announcement, the BoC emphasized that it can’t project GDP and inflation growth in Canada due to ongoing uncertainty. Instead, the Bank has put together two different scenarios in its accompanying Monetary Policy Report, based on possible US trade policy. The first assumes uncertainty persists, but tariffs remain limited – this would lead to temporarily weaker Canadian growth, and inflation staying close to its 2% target. The second scenario looks at an ongoing trade war, which would cause a Canadian recession, and inflation rising above 3% in 2026.

However, writes the bank, “Many other trade policy scenarios are possible. There is also an unusual degree of uncertainty about the economic outcomes within any scenario, since the magnitude and speed of the shift in US trade policy are unprecedented.”

Of course, even without full-scale tariffs in force – or a clear picture as to their final form – the economic damage could be permanent.

The wild stock swings that have accompanied Mr. Trump’s tariff announcements have also eroded investor trust in the foundations that underpin the market; the US 10-year Treasury yield, which is seen as a global benchmark for debt prices, saw its yield spike late last week, rising to a range of 4.4% from a previous low around 4.04%. 

That this “safe-haven” yield rose at a time of economic uncertainty is highly irregular; investors usually pile into bonds when stocks are falling, for their perceived safety and guaranteed returns. This signalled investors had lost confidence in US-backed assets, amid concerns that the current administration doesn’t understand either its tariff plan, or its implications for the market.

Chances of a US recession are steadily growing, with Americans increasingly fearing job loss. The US Federal Reserve – the American central bank counterpart to the Bank of Canada – is also finding itself between a rock and a hard place on the growing risk of stagflation. It’s anticipated the Fed will need to cut rates by more than initially expected if economic growth and jobs fall, but must also balance the risks of rising inflation.

How will today’s BoC announcement affect mortgage rates?

The impact on variable mortgage rates

Because variable mortgage rates are priced based on plus or minus a percentage to a lender’s prime rate, they rise and fall alongside any increase or decrease made by the BoC.

As the central bank opted to hold its trend-setting rate today, there will be no change to the current variable rate pricing in Canada.

The impact on fixed mortgage rates

Unlike variable mortgage rates, fixed mortgage rates aren’t directly influenced by the BoC’s rate policy. Instead, lenders price them based on bond yields, which make up a part of a bank’s investment asset mix. When the price of bonds rise and yields fall, lenders have the room to pass discounts on through their fixed-rate products, and increase them when yields rise.

Government of Canada five-year bond yields, which largely set the pricing for five-year fixed mortgage rates, have been on a rollercoaster over the past month, as investors have reacted to ongoing tariff news. After hitting a three-year low of 2.52% on April 4th, they’ve since rebounded to the 2.6% range. As a result, fixed mortgage rates have been discounted in recent weeks, with the lowest insured five-year fixed mortgage rate in Canada currently 3.79% (and 3.74% in Quebec).

Bond yields were little changed following this morning’s announcement, remaining in the upper 2.6% range, with no immediate movement expected for fixed mortgage rates.

The impact on banking products and investments

A BoC rate hold doesn’t just impact mortgages. As a result of today’s rate hold, the rate of return will remain the same for products such as personal loans, car loans, and lines of credit, which are also variable-rate products and based on the BoC’s rate. 

Savers with prime-based banking products such as high-interest savings accounts and guaranteed investment certificates (GICs) will be relieved, as they’ll see no change to their rate of return. 

GICs are still available at a favourable rate, and given these are considered a passive “safe-haven” investment, they may provide some peace of mind for investors amid continued market upheaval.

Also read:

• March CPI comes in surprisingly low at 2.3%
• Bank of Canada cuts target interest rate by 0.25% in March announcement
• How could US tariffs impact Canadian mortgage rates?
• How US tariffs can impact you
• What 25% US tariffs will mean for vehicle prices