Canada’s GDP Dips Again — Is the BoC Finally Getting the Slowdown It Wants?

Canada’s economy shrank in April and is expected to show another contraction in May — raising fresh questions about whether the Bank of Canada’s (BoC) aggressive rate policy is finally having its intended effect.

According to recent GDP data from Statistics Canada, the economy contracted by 0.1% in April, marking a second straight month of decline. Preliminary estimates suggest May may follow the same path, a trend that economists say signals weakening consumer demand and slowing business investment.

For the BoC — which has kept its policy rate at 2.75% — this kind of economic deceleration could be welcome news.

What does this mean for mortgage rates?

In short: it may increase the odds of a rate cut later this year.

The BoC has been looking for evidence that inflation is cooling and growth is stalling — and these GDP numbers might check both boxes. If the central bank becomes more confident that inflation is sustainably moving toward its 2% target, it may choose to cut rates as early as September or October.

This would be particularly significant for variable-rate mortgage holders, who haven’t seen much relief yet. Even a modest rate cut could reduce monthly payments and ease the strain many households have been under since early 2023.

Fixed rates may react sooner

Even before the BoC makes a move, bond yields have already started responding to economic weakness. The 5-year bond yield, which influences fixed mortgage rates, has slipped to around 2.83% — down from 2.90% a week earlier. That suggests that some lenders may begin trimming their fixed offerings, especially for high-ratio borrowers or shorter terms.

Should homeowners and buyers wait?

If you’re considering locking in a mortgage rate, this could be a “watch-and-wait” moment. While some fixed rates may come down marginally in the short term, a more significant shift likely depends on what the BoC does next — and that decision will hinge on inflation data due later this month.