Latest BoC Overnight Rate
On July 30, 2025, the Bank of Canada Rate is maintained at 2.75% for the third consecutive time. This “holding pattern” comes after a series of seven rate cuts that ended in March 2025. The Bank is in no rush to make a move until the economic picture gets a lot clearer.
How do US tariffs fit into all this?
The ongoing trade drama with the United States has thrown a wrench into the Bank’s usual playbook. Things are so unpredictable that instead of a single forecast, the Bank’s latest report lays out three different stories based on what might happen with tariffs.
The Canadian economy likely shrank by 1.5% in the second quarter of 2025, mostly because exports fell off a cliff after companies rushed shipments to get ahead of new tariffs. This isn’t just a number on a chart; it’s causing real-world problems. Factories are seeing orders cancelled, and exporters are scrambling to find new customers.
This uncertainty is forcing businesses to rethink big investments, and nervous consumers are holding back on spending. The decision to hold rates is a nod to this complicated mess, trying to provide stability without making things worse.
When will rates be cut again?
That’s the million-dollar question, and even the experts are divided. Some economists think the rate-cutting cycle is over, arguing that inflation is too persistent to allow for more cuts. Others believe the economic slowdown will eventually force the Bank’s hand, forecasting two more cuts that would bring the rate down to 2.25%.
A huge factor is what the U.S. Federal Reserve does. If the Fed starts cutting rates, it gives the Bank of Canada more room to do the same without causing the Canadian dollar to drop, which would make imported goods more expensive.
About the Bank of Canada
The Bank of Canada was established in 1935 following the Great Depression. The bank functions independently from the federal government while remaining accountable to Parliament through the Minister of Finance.
The Bank of Canada is responsible for formulating Canada’s monetary policy, regulating the financial system, issuing Canadian money, and managing foreign currency reserves. The Bank uses several tools to fulfill its mandate, the most prominent of which is its control of the target overnight rate, commonly known as the key policy rate.
What is the Bank of Canada Overnight Rate?
The target overnight rate, also called the key policy rate, serves as the central bank’s key mechanism for stimulating or slowing broader economic activity and inflation. The BoC directly impacts this rate daily to encourage banks to lend reserve balances to each other to meet regulatory requirements.
The key overnight rate shifts longer-term Government of Canada bond yields, impacting fixed-rate mortgages. Variable-rate mortgages move directly with prime rate changes tied to the BoC decisions.
The Overnight Market in Canada
Every day, banks come together to make offers to borrow and lend money in what’s called the overnight market. The interest rate they settle on for these short-term loans is the overnight rate. The Bank of Canada establishes a target for this rate and uses several mechanisms to keep the actual overnight rate close to this target:
- If the rate falls too low due to excess liquidity, banks can deposit their surplus funds with the Bank of Canada
- If the rate rises too high due to a cash shortage, the Bank of Canada is a lender of last resort.
Through this system, the Bank of Canada effectively maintains the overnight rate within a narrow band centred on its target rate, providing the foundation for all other interest rates in the Canadian economy.
How the BoC Sets Its Target Overnight Rates?
The BoC adjusts interest rates 8 times yearly based on evolving economic data. It targets national CPI inflation within a 1-3% band, promoting 2% inflation as the ideal level for maximizing employment and output growth. If consumer prices rise too quickly, the bank raises interest rates to cool economic activity and demand. When inflation drops too low, rate cuts aim to boost spending and production.
Bank of Canada Rate History
The Bank of Canada has implemented the following rate changes over the past 2 years
| Effective Date | Overnight Rate | Change |
|---|---|---|
| July 30, 2025 | 2.75% | – |
| June 04, 2025 | 2.75% | – |
| April 16, 2025 | 2.75% | – |
| March 12, 2025 | 2.75% | -0.25% |
| January 28, 2025 | 3.00% | -0.25% |
| December 10, 2024 | 3.25% | -0.50% |
| October 22, 2024 | 3.75% | -0.50% |
| September 3, 2024 | 4.25% | -0.25% |
| July 23, 2024 | 4.50% | -0.25% |
| June 4, 2024 | 4.75% | -0.25% |
| July 11, 2023 | 5.00% | +0.25% |
| June 6, 2023 | 4.75% | +0.25% |
| January 24, 2023 | 4.50% | +0.25% |
| December 6, 2022 | 4.25% | +0.50% |
| October 25, 2022 | 3.75% | +0.50% |
| September 6, 2022 | 3.25% | +0.75% |
| July 12, 2022 | 2.50% | +0.75% |
| May 31, 2022 | 1.50% | +1.00% |
The Bank’s rate cuts since mid-2024 have helped stimulate economic growth as inflation approached the target range. However, uncertainty surrounding potential U.S. tariffs on Canadian exports under the Trump administration continues to create economic headwinds that the Bank must navigate.
BoC Policy Rate Forecast for 2025-2026
Market expectations for the Bank of Canada’s interest rate path indicate a cautious approach to further rate cuts through 2025. Based on forward contracts on the Canadian Overnight Repo Rate Average (CORRA), financial markets anticipate:
| Announcement Date | Policy Rate at 2.75% | Policy Rate at 2.5% | Policy Rate at 2.25% |
|---|---|---|---|
| April 16, 2025 | 61% | 39% | – |
| June 4, 2025 | 24% | 76% | – |
| July 30, 2025 | – | 91% | 9% |
| September 17, 2025 | – | 60% | 40% |
| October 29, 2025 | – | 36% | 64% |
| December 10, 2025 | – | 24% | 76% |
Policy rate forecasts from Canada’s Big 6 Banks are as follows:
| Policy Rate | Q2 25 | Q4 25 | Q1 26 | Q4 26 | |
|---|---|---|---|---|---|
| BMO | 2.75% | 2.50% | 2.50% | 2.50% | Source |
| CIBC | 2.25% | 2.25% | 2.25% | 2.25% | Source |
| National Bank | 2.50% | 2.00% | 2.50% | 2.50% | Source |
| RBC | 2.25% | 2.25% | – | – | Source |
| Scotiabank | 2.75% | 2.75% | 2.75% | 2.75% | Source |
| TD Bank | 2.25% | 2.25% | 2.25% | 2.25% | Source |
It’s important to 3 factors influence the Bank’s rate decisions through 2025-2026
- Trade tensions with the United States: Donald Trump’s potential tariffs on Canadian exports create uncertainty that could slow economic activity.
- Structural inflation pressures: Several long-term factors may sustain inflation pressures, including:
- Reverse globalization and increased protectionism
- Energy transition costs and infrastructure investments
- Demographic shifts as the population ages in major economies
- Global economic conditions: Central banks worldwide are navigating similar challenges in balancing inflation control with economic growth.
The Bank of Canada is now facing the challenge of balancing its inflation mandate against supporting the economy through potential trade disruptions. In recent appearances, Governor Tiff Macklem has emphasized that the Bank remains focused on controlling inflation and proceeding carefully with future rate decisions.
Bank of Canada Rate FAQs
Why is the key rate important?
It is the BoC's primary mechanism for stimulating or slowing the economy and consumer price growth based on evolving conditions.
How do BoC rate changes impact Canadians?
The BoC key rate influences business and household borrowing costs, variable-rate mortgages, and broader prices for goods and services.
Why doesn't the Bank of Canada use negative interest rates?
The Bank of Canada has been reluctant to implement negative rates for several reasons: 1. Potential market disruption: Negative rates can create distortions in financial markets and banking systems. 2. Limited effectiveness: The experience of other countries suggests negative rates may have limited effectiveness in stimulating economic activity. 3. Banking system challenges: Banks may find it difficult to pass negative rates on to retail customers, potentially squeezing profit margins and destabilizing the financial system. 4. Alternative tools available: The Bank has other tools available, such as quantitative easing (asset purchases), forward guidance, and targeted lending programs. While the Bank has maintained that negative rates remain in its toolkit, it views them as a last resort rather than a preferred policy option.
How do BoC decisions relate to the US Federal Reserve?
As key trading partners, interest rate changes from the Fed and BoC often align directionally, but the timing and magnitude can differ based on each nation's economic needs.
The Bottom Line
The Bank’s July 30 decision to pause and shift to scenario planning rather than forecasting signals an exceptional level of uncertainty related to U.S. tariffs and their potential economic impact. Looking ahead, financial markets anticipate further modest rate cuts through 2025.
The current rate environment offers improved affordability for Canadian homeowners and prospective buyers compared to recent years. Individual mortgage decisions should always consider personal financial circumstances, risk tolerance, and long-term financial goals.
