The Bank of Canada kept interest rate cuts on the shelf in yesterday’s announcement – but it’s still likely to bring borrowing costs lower before the end of the year, according to Dominion Lending Centres (DLC) chief economist Sherry Cooper (pictured).
The central bank said it was holding its benchmark rate at 2.75% in what governor Tiff Macklem described as an economic environment marked by “unusual uncertainty.”
Still, Cooper told Canadian Mortgage Professional the threat posed to the Canadian economy by US tariffs means mortgage and housing market watchers should expect at least a couple of rate cuts between now and the beginning of 2026, even if first-quarter economic growth was higher than anticipated.
“It would have been nice to see a rate cut, because I do think that a weakening economy is going to turn out to have been a more serious risk than tariff-related inflation,” Cooper said after yesterday’s announcement.
“But clearly that Q1 GDP figure was much stronger than expected, and that, in combination with the uptick in core inflation, has led the Governing Council to be very cautious. But I still believe that we’re going to see at least two more rate cuts this year.”
Exactly when the Bank might put rate cuts back on the table is anyone’s guess. Its statement accompanying yesterday’s decision underlined “risks and uncertainties” facing the Canadian economy including a potential dive in demand for Canadian exports and the prospect of a sharp uptick in inflation amid the trade war.
What Wednesday’s Bank of Canada decision means for housing
Cooper said the timing of the central bank’s next cut will depend largely on incoming economic data – but a mild housing market uptick could be on the way in the months ahead, even if rates almost certainly won’t fall as dramatically as at the onset of the COVID-19 pandemic.
“[The housing market] seems to be beginning to improve, although it’s a far cry from what we saw in the early COVID days when interest rates plummeted,” she said. “We’ve seen mortgage rates lower than where they were, but also home prices are down and supply is very strong. It’s unusual when you see affordability improve and activity slump, but that’s very much the result of housing sentiment deteriorating.
“Confidence in real estate, particularly in the GTA [Greater Toronto Area], has been crushed. But this isn’t going to go on forever, and I think the Bank of Canada is still going to be in easing move as we move through 2025 – particularly as we see more data for the second quarter.”
Economists see potential July BoC cut
The choice between a rate hold or cut was viewed as a close call by observers in the weeks leading up to the Bank’s decision, although that first-quarter GDP data and an April uptick in core inflation measures tilted the balance in favour of no change.
Its next decision arrives at the end of July, with two consumer price index (CPI) updates and two jobs reports scheduled to land before then – and Bank of Montreal (BMO) chief economist Doug Porter said the door was still “wide open” for the central bank to cut in July if inflation and the economy both slow.
Canadian Imperial Bank of Commerce (CIBC) chief economist Avery Shenfeld also said there was a chance of further rate reductions by the Bank in the months ahead, with July looking “more promising” for a 25-basis-point cut if unemployment jumps and non-tariff-impacted inflation slows.
One thing that’s for sure: with the economic landscape subject to the whims of the Trump administration in Washington, few market watchers are certain about how things will play out for the rest of the year.
Cooper said Trump’s bombshell announcement this week that he was doubling steel and aluminum tariffs would essentially amount to a “blockade” of Canadian exports of those products, while Macklem also said that development was an unwelcome one.
“The outcomes of the trade negotiations are highly uncertain, tariffs are well above their levels at the beginning of 2025, and new trade actions are still being threatened,” he highlighted in comments during yesterday’s press conference.
“The recent further increases in US tariffs on steel and aluminum underline the unpredictability of US trade policy.”
CMP
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