BoC Rate Hold Confirmed — But Markets Still See September Cut as Likely

The Bank of Canada (BoC) has held its key policy rate steady at 2.75%, as expected — but markets are already betting that the central bank will begin easing by September if inflation stays under control.

In its latest policy announcement, the BoC noted that progress on disinflation continues, but reiterated that it needs “more sustained evidence” before it will begin lowering rates. For mortgage holders — especially those with variable rates — this cautious tone means more of the same, at least for now.

But financial markets aren’t convinced the BoC will wait much longer.

According to overnight swap data and analyst commentary, traders have priced in a 75% chance of a rate cut by September, with a full 25-basis-point reduction now considered likely if upcoming economic indicators point to further weakness.

Why the BoC is still cautious

While headline inflation has dropped to 1.7%, core inflation measures remain above the target range. Wage growth has also been strong, and the BoC remains concerned about sticky price pressures in shelter and service categories.

BoC Governor Tiff Macklem emphasized that the Bank is encouraged by recent data, but “not yet ready to declare victory over inflation.” This language aligns with the Bank’s gradual, data-dependent approach — especially in light of global economic uncertainties.

How mortgage rates are reacting

Despite the hold, the 5-year bond yield has started to fall, dropping below 2.83% for the first time in months. That’s good news for borrowers eyeing fixed-rate mortgages, as lenders often adjust fixed offers based on bond market expectations, not just BoC decisions.

Some non-bank lenders and online mortgage platforms have already begun discounting 1- to 3-year fixed terms, anticipating that rates will trend downward over the next few quarters.

Meanwhile, variable-rate mortgage holders will need to wait a bit longer. Until the BoC cuts the overnight rate, variable payments will remain unchanged — keeping the pressure on household budgets that have already been stretched by multiple rate hikes since 2022.

What should borrowers do?

If you’re renewing your mortgage or shopping for a new one, this is a moment to compare short-term fixed options with variable terms. If a BoC cut does arrive in the fall, a variable strategy may pay off — but the next few months could still be volatile.