Central bank’s April call arrives with no end in sight to ongoing geopolitical chaos
The Bank of Canada has left interest rates unchanged in its third decision of the year, holding steady yet again amid conflicting signs on the inflation and economic outlooks.
The central bank said on Wednesday morning it was keeping its policy rate at 2.25% for the fourth time in a row, an unsurprising decision that means variable mortgage and home equity line of credit (HELOC) rates will stay where they are.
The Bank cut interest rates four times in 2025, bringing its benchmark rate a full percentage point lower. But after hitting pause on rate reductions in its December decision, it’s maintained a wait-and-see approach throughout this year as the US-Iran war continues to stoke inflationary fears and concerns about a potential sharp hit to the Canadian economy.
Economists and financial markets saw little chance of the BoC moving away from that approach in today’s decision. Experts had overwhelmingly expected the central bank to hold rates steady in April, although opinions are divided on whether the Bank’s next move will be a hike or a cut.
Oil price shocks caused by the Iran conflict sent headline inflation higher, in March, with the consumer price index (CPI) jumping by 2.4% year over year last month.
But core inflation trends closely watched by the Bank were more encouraging, leading TD vice president and deputy chief economist Derek Burleton to conclude that decisionmakers would “look through” upside risks to inflation.
He told an audience at last week’s Canadian Mortgage Brokers Association – Ontario (CMBA-ON) annual conference that a rate hold by the Bank in today’s announcement was a “slam dunk” and that he viewed rate cuts as more likely than hikes in the months ahead.
The Federal Reserve south of the border is also set to announce its next move on interest rates this afternoon, with the Bank of England following suit on Thursday.
Those central banks are also expected to hold steady, mirroring the BoC’s cautious approach as they weigh the threat of the Iran war to their economies against the potential for a surge in inflation.
The Bank of Canada’s next announcement is scheduled to arrive on June 10, the first of its last five rate decisions of the year.
Governor Tiff Macklem has played his cards close to the chest in recent press conferences, staying guarded on the central bank’s outlook and whether it sees rate changes on the way anytime soon.
But for now, it seems much will depend on the conflict in Iran – and whether US and Iranian negotiators can strike a lasting truce to soothe financial markets and ease global economic fears.
What it means for the mortgage market
The decision doesn’t raise any eyebrows for mortgage professionals on the ground, either. In a CMP poll this week asking the mortgage industry for their prediction on what the BoC would decide, 85% of respondents said they expected no change, with just 13% forecasting a cut.
TD’s Steve Ng told Canadian Mortgage Professional he had been fully expecting the Bank of Canada to keep rate cuts or hikes on ice – and doesn’t see the decision moving the needle for mortgage rates.
“With the rate hold, we’re not expecting rates to change too much,” he said. “We’ve seen fixed rates, because of bond yields, uptick a little bit. That’s creating a little bit of nervousness when it comes to consumers.
“But we fully anticipate a pause for at least a few more months, waiting for the Bank of Canada to assess how global events – particularly what’s happening in the Middle East right now – is going to unfold.”
Top of mind for mortgage borrowers in the months ahead, according to Ng, should be making sure not to set too much stall by the Bank of Canada’s decisions. “Our key message to clients is not to anchor their decisions to any one single Bank of Canada announcement or guidance,” he said.
“We’re seeing the strain that higher rates are putting on households. Among homeowners, there’s a good number of them that are expecting to see their payments rise. Our focus is really on planning for the future, not predicting.”
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