Dan Eisner, True North Founder and CEO, offers industry insight on how Canadian and global factors might impact interest rates this year.
Variable mortgage rates are paused, and fixed rates are being held higher. The Bank of Canada is watching recessionary factors, while trying to slow inflation's pace in light of recent trade and political disruptions. Here’s my take on whether this economic tug-of-war will soon pull rates lower.
As the founder and CEO of True North, I'm always asked about interest rates. That makes perfect sense as we've built True North Mortgage to offer the lowest mortgage rates around — with a simple, fast, client-focused service. Many of our competitors have tried to copy us ever since.
After 9 cuts of 0.25% since June 2024, the Bank of Canada's interest rate has reached its theoretical 'neutral rate' of 2.75% (from a 5.0% high) — and is still expected to go lower to spur economic growth).
Canadian interest rates are caught in the eye of the U.S. trade and policy storm. Will winds shift toward a recession (more rate cuts), or fan inflation's rise (more rate pauses)?
At its last meeting on June 4, 2025, the Bank of Canada held its rate at 2.75% for the second decision in a row, maintaining most bank prime rates at 4.95%.
Check back for the next rate decision on July 30, 2025. Get timely updates — sign up for our newsletter.
The next Bank of Canada rate decision is just around the corner — and Dan’s watching the signs that could point to another cut, a hold, or a shift in tone. Here's what he's seeing right now.
The Bank of Canada’s policy rate affects bank prime rates, which in turn move variable mortgage rates. Fixed mortgage rates follow the bond market, which can anticipate changes to the prime rate.
It's going to be another close call this summer, and the BoC will once again need to weigh several factors, likely right up to decision time.
The May inflation report didn't come out strongly one way or the other, only to say headline inflation of 1.7% was still below the BoC's 2.0% target and core inflation decreased slightly. But the removal of the carbon tax is affecting base year comparisons, and core is at the top of the BoC's range (at 3.0%).
Several key readings are still to come ahead of July 30, including the GDP, labour, and another CPI report. Economic readings are always 'lagging' indicators — and we're all waiting to see if tariffs and trade disruption will show more strongly as time goes by. Whether they show up for higher inflation or a worsening economy is the real question.
Here's how the markets are reading the chances of seeing an interest rate cut on July 30 (courtesy of mortgagelogic.news, as of June 20, 2025):
That doesn't mean the BoC won't make up its own mind despite what markets are foretelling. Unlike the U.S. Federal Reserve, which wants investors to know well ahead of time what it will do with interest rates, our central bank has shown it can land a last-minute rate-move surprise (as seen with a surprise monster hike or two in 2022), despite its interest in being transparent.
Sudden U.S. tariffs imposed on Canadian imports, along with Canadian retaliation on U.S. imports, introduce a different kind of inflation into the Bank of Canada rate agenda equation. Demand-pull inflation is what we're used to, which the BoC aims to curb with higher interest rates.
However, higher prices that are passed onto consumers due to 'artificially' higher input costs for businesses (such as from tariffs paid to the 'imposing' government) are seen as cost-push inflation. Raising interest rates in response to this type of inflation dilemma may lead to deeper economic damage, risking stagflation.
We break down key factors — such as inflation, jobs, and GDP — and what they signal for future rate moves. Read here for a deeper dive into these factors.
What's the most important economic factor the Bank of Canada considers? The BoC's sole job is to control inflation. It uses its policy interest rate (which directly influences bank prime rates) to keep inflation close to its 2.0% target, within a range of 1.0% to 3.0%.
Other key economic factors can help the BoC determine the path of inflation, whether it's likely to rise or fall.
For example, rising unemployment and slow GDP growth may call for a rate cut to spur the economy. However, rising inflation could suggest the need to pause or raise rates to cool demand and keep inflation in check.
While Dan's outlook is shaped by daily client feedback and on-the-ground trends, he also closely watches the forecasts of several economists:
As you can see, these rate predictions reflect some uncertainty driven by U.S.-induced market turmoil — but for now, they don’t diverge widely.
| Year | Market-Implied BoC Rate | |
|---|---|---|
| Mid-2025 | 2.75% | |
| 2026 to 2027 | 2.50% | |
| 2028 to 2029 | 2.75% | |
| 2030 | 3.00% |
National Bank recently noted that 36% of businesses have been affected by the trade conflict in the form of price increases, changes in demand, or supply chain disruptions.
Before tariffs hit the headlines, I expected a resting Bank of Canada rate of 2.50%, with a bank prime rate settling around 4.70% — a typical spread we often see when markets stabilize.
Today, the prime rate sits around 4.95%, based on a 2.75% BoC policy rate.
But with the added strain from U.S. tariffs and proposed tax policies (the latter alone could cost Canadians and businesses billions), sentiment is shifting, even if the Bank of Canada insists on cooling demand through higher interest rates to keep tariff-induced inflation in check.
The economic drag is slowly showing up in economic indicators — and we're seeing how the trade disruption is hitting supply chains, small and large businesses, and consumer prices. If a U.S. trade agreement isn't reached soon, the BoC may need to respond with another 2 to 5 cuts (0.25% each), possibly taking the policy rate as low as 1.5%. That could drive bank prime rates down to 4.45% or even lower.
Higher inflation and paused interest rates aren't off the table — but economic softening may win out, pulling rates down more than expected.
The BoC had indicated (before tariffs) that its neutral rate, a rate point where the economy is neither stimulated nor repressed, is pegged at around 2.75. However, rates likely need to go lower to stimulate an economy dragged down by trade turmoil.
There's always the danger that bank prime rates (led by the BoC policy rate) could increase to thwart inflation, although the economic softening already underway as a result of tariffs makes it unlikely for this year.
Note that bond yields, which inform fixed rates, will be pushed and pulled by a mix of forces. In the short term, political and economic volatility is likely to push yields and fixed rates up (response to inflationary and global instability). But if more than one further interest rate cut is anticipated for 2025, look for a dedicated downward trend.
Fixed mortgage rates will experience fluctuation between interest rate announcements. Read the fixed rate section and see forecasts for 2025 to 2027.
Did you know? CPI (Consumer Price Index) measures the monthly change in prices (from a fixed basket of goods and services) paid by Canadian consumers. It's the most widely used measure of inflation. See 2024 CPI readings here.
Canada's headline inflation in May matched the 1.7% rate recorded in April, with base year effects partially offset by the removal of the carbon tax. Stripping out the energy component puts it at 2.7% (down from 2.9% last month). The average of median and trim core inflation eased only slightly to 3.0% from 3.1%, still at the top of the Bank of Canada's target range.
What does May's inflation report mean for an interest cut this summer? Still leaning hawkish (aka another pause). The Bank of Montreal chief economist, Douglas Porter, said it best, outlining the murkiness underlying the headline rate: "...the breadth of inflation was a bit more troubling, with 47% of the core basket now above 3%, from 42% in April. Not encouraging."
There's debate as to whether economic cooling will help keep inflation in check as the weeks march on, and whether the potential for a trade deal between Canada and the U.S. (which could be inked by July 21, the next Trump deadline) could alleviate pressure on future price increases.
One more CPI reading before the July 30 BoC rate decision could provide a clearer indication of how inflation is responding to tariffs and global volatility, and whether the central bank intends to keep rates on hold a little longer.
Canada's May unemployment rate rose to 7.0%, a 9-year high (excluding the 2020/21 pandemic years), despite the creation of 8.8K jobs.
Private sector jobs showed more promising gains. However, hiring intentions have slowed across the board, and it is taking longer for people to secure full-time work. Youth and summer students (the demographic aged 15-24 years) are experiencing a 20.1% unemployment rate, not seen since May 2009.
The Bank of Canada viewed the job creation as an unexpectedly positive sign amid tariff turmoil. However, a recent payroll and vacancies report reveals further softening that wasn't captured in the main labour report, including higher job losses and the lowest job vacancy rate since October 2017.
In 2024, Canadian GDP grew by more than expected, with a revised annualized pace of 2.6% (real GDP Q4 growth was 0.4%, quarter-over-quarter).
But in 2025, tariff trouble is disrupting a post-pandemic recovery — how much remains to be seen.
So far this year, growth forecasts have sailed into stronger headwinds. Q1 2025 saw an unexpected GDP gain of 0.4%, matching the increase in Q4 2024, likely due to consumers and businesses attempting to get ahead of the trade war.
However, April GDP contracted by 0.1%, dragged down by sectors most affected by the ongoing U.S. trade turmoil. May and Q2 2025 results are also lining up on the negative side.
Will the negative GDP dips be enough to sway the Bank of Canada to cut interest rates again this summer? They might, if inflation doesn't show signs of an immediate surge.
National housing sales fell again in March 2025, and listings increased slightly; home prices remained relatively stable.
Will lowering interest rates (and new mortgage rules favouring younger buyers) encourage some buyers out this spring despite the trade-induced economic turmoil? Perhaps not, if financial concerns override the spring feeling of looking for a new home — or if home prices rise from a lack of inventory.
Like it or not, our countries' economies are closely linked.
With a Trump presidency, here are some current concerns:
Here's a look at the inflation rate over the past year — now hovering around the Bank of Canada's target of 2.0% from a high of 8.1% reached in June 2022.
Total CPI (Consumer Price Index) is represented as an annual inflation rate (headline inflation), which appears in the media the most. It reflects the year-over-year price change percentage for a weighted basket of goods (including volatile ones, like gas and food).
Core inflation is closely monitored by the BoC. We show the average of trim and median, which strip out extreme price volatility to get to the 'core' of price movements.
CPIX excludes the most volatile price components and strips any effect of indirect tax changes on what's left (hence the X). The BoC stopped using this measure in 2016, though many experts still use it to gauge the 'bare' impact of price changes.
Fixed mortgage rates are steered by the Canadian bond market and (eventually) follow the movements in bond yields up or down. 5-year bond yields are the standard for setting 5-year fixed rates and are the reference in this section and blog.
Canada's 5-year bond yields remain around 2.8% following a conflicted May CPI report and an April GDP contraction of 0.1%.
Propping up bond yields are tariffs-related price hikes, supply chain issues, global tensions that could impact oil prices, and waning confidence in the U.S.'s ability to handle its burgeoning debt long term.
Canada’s cooling economy could help ease yields and fixed rates down the (mortgage) road, but for now, bond markets are waiting for more signs of weakening to bubble to the surface. Until then, fixed mortgage rates are holding firm, waiting for the trade storm’s eye to pass.
The U.S. Fed has signalled a potential rate cut as early as this summer (a sentiment that followed President Trump’s demand for a total 2.5% interest rate drop) — which could help open a path for the BoC to cut the prime rate again this summer if inflation's rise looks to be tamed.
Expect lender specials to pop up or disappear quickly on specific fixed-rate terms, depending on yield movements. Lenders are closely monitoring their costs and retaining capital to address the potential for an increase in debt arrears.
Current fixed rates have recently risen as yields increased and may drop slightly if the Bank of Canada is expected to cut the prime rate.
A looming recession would see fixed rates drop further in anticipation of additional prime rate cuts. However, if inflation and higher yields persist before a recession hits, look for fixed rates to follow that upward trend.
| Year | Forecasted 5-Yr Fixed Range | |
|---|---|---|
| 2025 | 4.00% – 4.60% | Current best rates are around 4.09% — modest downward pressure may emerge, but bond yields are holding back bigger drops. |
| 2026 | 3.80% – 4.40% | If inflation cools and yields ease, rates could settle lower. Still sensitive to economic and global market shocks. |
| 2027 | 3.75% – 4.25% | Long-run stability expected, but not a full return to pre-pandemic ultra-low rates. |
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The U.S. economic landscape was looking pretty strong (along with rising inflation), but Trump's tariffs and mass government firings are showing up as underlying cracks.
The fresh U.S. President Trump/billionaire Elon Musk administration has thrown substantial uncertainty into how both economies will fare as 2025 is certain to become a year to remember (or forget).
Why do we care? Economic conditions south of the border can influence factors weighed by our central bank (and drive higher prices or economic detraction here) to affect its rate decisions.
Despite the constant, distant calls of the 'recession' loon, it hasn't yet flown into our backyard. However, the recent trade disruption may finally beckon a hasty landing.
With the high-interest-rate environment so quickly imposed on Canadians to tame high inflation post-pandemic, a mild recession had been expected through the first half of 2024, which didn't materialize. Until Trump took office, Canada's growth projections were starting to look up for 2025.
Will market resilience keep our economy out of recessionary territory? Some experts expect a recessionary shock from the trade war. In time, it's hoped that Canadian businesses will adapt.
Canadian initiatives are already underway in an attempt to head off an economic blow — such as reducing inter-provincial trade barriers, reviewing restrictive government regulations that choke our productivity, and unfurling more international trade opportunities.
Before the trade disruption, our labour market and economic growth were showing signs of strength, yet household budgets are still straining under the higher prices all around.
If economic weakening accelerates, the BoC would likely drop prime rates faster (assuming that job losses and spending pull back would place downward pressure on inflation's pace), providing more budget relief when we'll likely need it most.
Stagflation, an entrenched state of high inflation coupled with a weak economy and high unemployment, is on everyone's radar. The conditions for stagflation don't currently exist, as our inflation pace isn't high enough, having come down to around 2% from over 8%, and our unemployment rate is still within the 6's range.
Those conditions could change if cost-push inflation (artificially higher consumer prices due to tariffs instead of high demand) soars, the economy weakens, and declining interest rates don't spur enough (or fast enough) rebound spending.
Fact: A recession is technically considered an economic contraction reported for at least two financial quarters in a row, but typically a pronounced and persistent period of economic decline.
Home affordability has improved slightly in 2025 due to lower interest rates and cooling home prices in some Canadian centres.
There was anticipation of a spring housing rush as prime rates eased off — however, as the trade war continues, many home buyers are still holding off on their purchases amid economic uncertainty and as higher inflation attempts to stage a comeback.
Sellers are waiting as well, though some are starting to list as patience wears thin. The result is overall less demand and higher housing inventories than in past years. Buyers with sufficient financial resources or those relocating will still seek homes and may find deals on both mortgage rates and home prices in areas where market competition remains subdued.
Read more in our Housing Market Forecast 2025-2027
And with over 1M renewals coming up in 2025, mortgage activity will (always) soldier on. According to a recent Equifax report, new mortgage originations jumped 57.7% year-over-year in Q1 2025, mostly due to renewals and refinancing.
At the very least, renewers can look to lowered rates this year to help buffer the differential between then and now rates for (hopefully) better mortgage payments than they had worried about.
Whether rates are falling or rising, your best rate and mortgage can help you better afford your home. Many Canadians are still very unaware that they don't have to stick to their bank for a mortgage, for a purchase, renewal or refinance.
First-time home buyers, especially, need expert advice to set them on a path to successful homeownership amid all these price pressures.
Variable rates are moving down and can offer instant budget savings at each rate cut versus locking into a 5-year fixed rate and watching rates drop from the sidelines. If you get nervous, you can always lock into a fixed rate without penalty (most lenders allow this mortgage move).
Waiting to see what rates will do? Consider locking into a shorter fixed rate — such as our low short-term fixed Rate Relief™ product. If this product is right for you, it can help you bridge the gap with budget relief now while allowing time to pass before deciding on a longer commitment.
Owning a home is a tremendous source of pride in Canada. I created True North to provide clients with a better mortgage experience and save them thousands with their best rate and mortgage choice.
Have questions about your mortgage or pre-approval? Give us a shout, anywhere you are in Canada. We have your best rate, expert advice and unbeatable service — with over 16,000 5-star reviews from our happy clients.
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