The next Bank of Canada (BoC) interest rate update is happening this week, the first since Prime Minister Mark Carney won the snap election in April.
Canada’s central bank will make the announcement on Wednesday, June 4, and there are a lot of factors that may come into play when deciding whether the interest rate increases, holds, or goes down.
In April, the Bank of Canada revealed its first interest rate hold of the year, maintaining its policy rate at 2.75 per cent.
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Our next interest rate decision is on June 4.
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— Bank of Canada (@bankofcanada) May 30, 2025
Before that update, the BoC had made two 0.25 per cent cuts, with the last one on March 12 bringing the rate to 2.75 per cent.
According to Ratehub.ca mortgage expert Penelope Graham, Canadians will likely see that lending rate hold on Wednesday, which she says is largely due to the rising core inflation in the latest Consumer Price Index report.
“While the headline number is below the central bank’s two per cent target, temporary drops in gas prices have masked persistent increases in other spending categories,” explained Graham.
She adds that the Crown corporation will continue to model potential scenarios that also depend on how the U.S.-Canada tariffs spat evolves.
“With expectations rising that GDP will contract this quarter and next – officially ushering in a recession – the BoC is still likely to deliver more cuts in 2025, but won’t be in a rush to do so prematurely,” said Graham. “However, should Friday’s GDP report surprise on the downside, we may see a more dovish tone from the BoC than in April.”
How the Bank of Canada interest rate could affect your mortgage
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It does not seem to be the best time for Canadian homeowners or potential homebuyers either.
The mortgage expert says bond yields have steadily increased again over May and have remained elevated as investors “remain wary of U.S.-backed debt.”
“Yields have also been less reactive to positive economic news, such as rolled-back tariffs and new trade agreements,” she explained. “This has pushed the Government of Canada five-year bond yield, which lenders use when pricing their five-year fixed rate mortgage products, to the upper 2.8 – 2.9 per cent range, putting growing upward pressure on fixed rates.”
Graham adds that demand for Canadian real estate continues to cool, with April sales activity “reminiscent of the early days of the pandemic.”
A recent report from the BMO Financial Group mirrors this, finding that many Canadians are “losing motivation” as the possibility of Canada descending into an economic recession increased from 60 per cent to 74 per cent from March to April 2025.
“A combination of economic uncertainty and steep affordability has kept buyers on the sidelines, and will do so until borrowing costs fall further,” said Graham.