The Bank of Canada has chosen to hold its key interest rate steady at 2.75%, a decision that has left many lenders disappointed. This move signals the central bank’s cautious approach amid persistent inflation pressures and ongoing global trade uncertainties. By maintaining the current rate, the Bank is signalling that it is not yet ready to ease monetary policy despite growing calls for relief.
Economic resilience and inflation trends played a significant role in this choice. While inflation remains above target levels, the Bank is monitoring upward pressures from tariffs and supply chain disruptions. The decision reflects a balance between supporting the economy and containing inflation risks.
Lenders had anticipated a rate cut to help reduce borrowing costs, particularly for mortgages and business loans, but the Bank remains focused on data and evolving economic conditions before making further adjustments. For more detailed insights on this decision, visit Bank of Canada holds rate at 2.75%, disappointing lenders.
Bank of Canada’s Rate Hold Decision and Economic Context
The Bank of Canada maintained the overnight rate at 2.75%, reflecting caution amid mixed economic signals. The decision balances inflation control and economic growth concerns, with global trade tensions and domestic factors shaping the outlook.
Details of the September 2025 Rate Decision
On September 17, 2025, the Bank of Canada kept its policy rate at 2.75%. This move followed a previous cut to 2.5% in mid-September before a brief rise back to 2.75%. The overnight rate target remains steady, alongside the Bank Rate at 2.75% and the deposit rate at 2.45%.
The decision signalled a pause rather than a tightening or further easing, aimed at managing inflation without exacerbating economic slowdown. The federal government’s recent removal of many retaliatory tariffs contributed to expectations of less upward pressure on consumer prices.
The Bank announced its next rate update scheduled for October 29, 2025, aligning with the release of the October Monetary Policy Report. This signals ongoing vigilance in monitoring evolving trade impacts and inflation trends.
Factors Influencing the Policy Rate Hold
The Bank’s hold stems from several pressures. Canada’s second-quarter GDP decreased by approximately 1.5%, with exports dropping sharply by 27%, primarily due to trade uncertainty and US tariffs. Business investment also contracted, while consumption and housing activity showed resilience.
Labour market weakness is a concern, with employment falling and unemployment rising to 7.1% by August. Wage growth has slowed, and hiring intentions weakened.
Inflation remains within the 1% to 3% target range, with core inflation measures near 2.5%. The Bank sees risks in global growth slowing, middle-range inflation stabilizing, and the Canadian dollar holding steady against the US dollar despite market shifts.
These factors justify a cautious approach to rate changes, supporting economic stability while keeping inflation expectations anchored.
Comparison With Previous Rate Announcements
This decision differs from the Bank’s actions earlier in 2025, when it cut rates to stimulate growth amid economic weakness. The latest hold contrasts with a string of rate cuts in late 2024 and early 2025, including two 50-basis-point reductions before April.
Since holding the rate steady twice consecutively, the Bank appears to be balancing the risk of slowing growth against persistent inflation pressures. This marks a shift from the more aggressive easing earlier in the year to a cautious wait-and-see stance.
The Canadian dollar’s relative stability compared to US currency has also influenced the Bank’s pricing and policy decisions, contrasting with prior volatility that prompted rate changes.
For more context on this decision, see the Bank of Canada lowers policy rate to 2½% and its subsequent rate hold announcements.
Implications for Lenders, Borrowers, and the Broader Economy
The Bank of Canada’s decision to hold the overnight rate at 2.75% affects mortgage renewals, lender profitability, inflation trends, and currency dynamics. Borrowers face predictable payment schedules, while lenders navigate an evolving mortgage market amid inflation pressures. The broader economy responds to these signals, balancing growth and inflation containment.
Mortgage Renewals and Payment Changes
Many Canadian homeowners with variable-rate mortgages will see minimal immediate change. The hold at 2.75% means their payment amounts are stable for renewal periods.
Fixed-rate borrowers nearing renewal may still encounter rates influenced by longer-term bond yields, which have been fluctuating but remain sensitive to central bank decisions.
Changing mortgage payments mainly reflect past rate hikes. Consumers might not fully anticipate increased carrying costs due to previous sharp rate increases.
Overall, predictable payments ease household budgeting, but the past rate rise cycle means many face higher mortgage expenses than before 2024. This dynamic shapes consumer confidence and spending patterns.
Effects on Canadian Lenders and the Mortgage Market
Lenders experience pressure on net interest margins as rate holds temper the benefits of higher yields. Even so, higher borrowing costs since late 2023 have boosted income from new variable-rate borrowers.
Competitive mortgage terms remain critical as lenders adjust to uncertain demand. The 2.75% hold signals caution, slowing a rapid mortgage repricing trend.
Risk management is crucial because rising interest rates increase default risk on higher-balance loans, a concern highlighted in recent data by Statistics Canada.
Lenders may focus more on fixed-rate products if the market anticipates further rate cuts later in 2025. This balance affects product innovation and borrower incentives.
Trends in Inflation and Core Inflation
Inflation remains above the Bank of Canada’s 2% target, with core inflation showing unexpected firmness despite economic softness.
Persistent non-energy goods and services inflation suggests ongoing pricing pressures in key sectors.
The BoC’s hold reflects caution, balancing rising core inflation against signs of labour market stress that may reduce demand and inflationary pressure over time.
This complex inflation environment complicates monetary policy decisions, as the Bank weighs upward cost pressures against weaker economic signals.
Future Outlook for Canadian Dollar and Interest Rates
The Canadian dollar has shown volatility in response to both global trade uncertainties and domestic rate expectations.
Holding the rate steady supports the CAD by reducing shock risks from abrupt monetary policy shifts.
Economists at TD Economics expect up to two rate cuts by year-end due to weakening labour markets and moderating economic growth.
Such cuts could soften borrowing costs further, influence housing demand, and pressure the CAD lower depending on comparable US Fed actions.
The Bank of Canada’s measured approach signals ongoing data dependency, with interest rates likely to shift cautiously amid inflation and economic developments.
