The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%.

While some elements of US trade policy have started to become more concrete in recent weeks, trade negotiations are fluid, threats of new sectoral tariffs continue, and US trade actions remain unpredictable. Against this backdrop, the July Monetary Policy Report (MPR) does not present conventional base case projections for GDP growth and inflation in Canada and globally. Instead, it presents a current tariff scenario based on tariffs in place or agreed as of July 27, and two alternative scenarios—one with an escalation and another with a de-escalation of tariffs.

While US tariffs have created volatility in global trade, the global economy has been reasonably resilient. In the United States, the pace of growth moderated in the first half of 2025, but the labour market has remained solid. US CPI inflation ticked up in June with some evidence that tariffs are starting to be passed on to consumer prices. The euro area economy grew modestly in the first half of the year. In China, the decline in exports to the United States has been largely offset by an increase in exports to the rest of the world. Global oil prices are close to their levels in April despite some volatility. Global equity markets have risen, and corporate credit spreads have narrowed. Longer-term government bond yields have moved up. Canada’s exchange rate has appreciated against a broadly weaker US dollar.

The current tariff scenario has global growth slowing modestly to around 2½% by the end of 2025 before returning to around 3% over 2026 and 2027.

In Canada, US tariffs are disrupting trade but overall, the economy is showing some resilience so far. After robust growth in the first quarter of 2025 due to a pull-forward in exports to get ahead of tariffs, GDP likely declined by about 1.5% in the second quarter. This contraction is mostly due to a sharp reversal in exports following the pull-forward, as well as lower US demand for Canadian goods due to tariffs. Growth in business and household spending is being restrained by uncertainty. Labour market conditions have weakened in sectors affected by trade, but employment has held up in other parts of the economy. The unemployment rate has moved up gradually since the beginning of the year to 6.9% in June and wage growth has continued to ease. A number of economic indicators suggest excess supply in the economy has increased since January.

In the current tariff scenario, after contracting in the second quarter, GDP growth picks up to about 1% in the second half of this year as exports stabilize and household spending increases gradually. In this scenario, economic slack persists in 2026 and diminishes as growth picks up to close to 2% in 2027. In the de-escalation scenario, economic growth rebounds faster, while in the escalation scenario, the economy contracts through the rest of this year.

CPI inflation was 1.9% in June, up slightly from the previous month. Excluding taxes, inflation rose to 2.5% in June, up from around 2% in the second half of last year. This largely reflects an increase in non-energy goods prices. High shelter price inflation remains the main contributor to overall inflation, but it continues to ease. Based on a range of indicators, underlying inflation is assessed to be around 2½%.

In the current tariff scenario, total inflation stays close to 2% over the scenario horizon as the upward and downward pressures on inflation roughly offset. There are risks around this inflation scenario. As the alternative scenarios illustrate, lower tariffs would reduce the direct upward pressure on inflation and higher tariffs would increase it. In addition, many businesses are reporting costs related to sourcing new suppliers and developing new markets. These costs could add upward pressure to consumer prices.

With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged. We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade. If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate.

Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve.

We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled.

Information note

The next scheduled date for announcing the overnight rate target is September 17, 2025.

This article was releasted on the Bank of Canada website.

The Canadian Federation of Independent Business is forecasting a recession in Canada this year.

A new report from CFIB shows it’s forecasting that growth declined 0.8% in the second quarter and will contract by a further 0.8% in the third quarter.

The group says an analysis of the impact of tariffs on supply chains highlights that most firms are anticipating long-term disruptions.

CFIB chief economist Simon Gaudreault says the uncertain trade situation is impacting business confidence, resulting in paused or cancelled investments.

Private investment is expected to fall 13% in the second quarter and continue to decline by 6.9% in the third quarter.

Despite the anticipated downturn, CFIB highlights that inflation remains stable, putting the Bank of Canada in a better position to consider easing borrowing costs in the second half of the year.

This report by The Canadian Press was first published July 24, 2025 and reposted from Canadian Mortgage Trends.

Canada’s pace of new home construction edged up in June, rising 0.4% from May to a seasonally adjusted annualized rate of 283,734 units, according to the Canada Mortgage and Housing Corporation.

The seasonally adjusted annual rate (SAAR) of total housing starts reached 283,734 units, up slightly from 282,705 the month before.

Urban centres accounted for 261,705 of those units, while rural starts were estimated at 22,029.

The six-month trend measure, a smoother indicator of momentum, rose 3.6% to 253,081 units, the highest since early 2023.

The overall increase was driven by a handful of regions, with British Columbia accounting for the bulk of the gains. Starts in the province rose by 28,000 to an annualized rate of 64,200 units, led by a surge in multi-unit construction in Vancouver, where actual starts jumped 74% year-over-year.

Modest increases in New Brunswick and P.E.I. also helped lift totals in the Atlantic region.

By contrast, starts declined in seven provinces, including Ontario, Quebec and Alberta. Toronto saw actual housing starts plunge 40% compared to June 2024, while Montreal posted an 8% drop—both driven by fewer multi-unit projects.

Despite a “healthy” rate of housing starts, TD Economics expects some of the recent momentum to fade.

“Oversupply in key markets combined with slower population growth is weighing on rents, while high construction costs and near-term economic uncertainty may weigh on sales activity,” wrote TD economist Marc Ercolao.

Still, he noted that “June’s housing starts surpassed expectations, helping second quarter starts growth notch a record gain.”

This, he said, should provide a near-term tailwind for residential investment, “buffering weakness in other areas of the Canadian economy that have been put under stress in the past few months.”

This article was written for Canadian Mortage Trends by the CMT Team.

Canada’s housing agency says advertised rents in some major cities are easing due to factors such as increased supply and slower immigration, but renters are still not feeling relief.

In its mid-year rental market update released Tuesday, Canada Mortgage and Housing Corp. said average asking rents for a two-bedroom purpose-built apartment were down year-over-year in four of seven markets.

Vancouver led the way with a 4.9% decrease in the first quarter of 2025, followed by drops of 4.2% in Halifax, 3.7% in Toronto and 3.5% in Calgary. Average asking rents grew 3.9% in Edmonton, 2.1% in Ottawa and two per cent in Montreal, compared with the first quarter of 2024.

Landlords reported that vacant units are taking longer to lease, CMHC said, especially for new purpose-built rental units in Toronto, Vancouver and Calgary, where they face competition from well-supplied secondary rentals such as condominium units and single-family homes.

“Purpose-built rental operators are responding to market conditions by offering incentives to new tenants such as one month of free rent, moving allowances and signing bonuses,” the report said, adding some landlords anticipate they may need to lower rents over the next couple of years.

The agency said rents for occupied units are continuing to rise but at a slower pace than a year ago. It said higher turnover rents in several major rental markets have decreased tenant mobility, leading to longer average tenancy periods and “more substantial” rent increases when tenants do move.

In 2024, the gap in rental prices between vacant and occupied two-bedroom units reached 44% in Toronto, the highest among major cities, while Edmonton had the smallest gap at roughly five per cent.

Vacancy rates are expected to rise in most major cities this year amid slower population growth and sluggish job markets, CMHC said.

“As demand struggles to keep pace with new supply, the market will remain in a period of adjustment. This is particularly true in Ontario due to lowered international migration targets, especially in areas near post-secondary institutions,” the report stated.

“While the market may have abundant supply in the short-term, there is still a need to maintain momentum in new rental supply to meet the needs of projected future population growth and to achieve better affordability outcomes for existing households.”

Despite downward pressure on rent prices, CMHC said affordability has still worsened over time as rent-to-income ratios have steadily risen since 2020, especially in regions like Vancouver and Toronto where turnover rents are driving increases.

The latest monthly report from Rentals.ca and Urbanation said asking rents for all residential properties in Canada fell 2.7% year-over-year in June to $2,125, marking the ninth consecutive month of annual rent decreases.

Despite the drop, average asking rents remained 11.9% above levels from three years ago and 4.1% higher than two years ago, “underscoring the long-term inflationary pressure in the rental market,” the report said.

Purpose-built apartment asking rents fell 1.1% from a year ago to an average of $2,098, while asking rents for condos dropped 4.9% to $2,207. Rents within houses and town homes fell 6.6% to $2,178.

“Rent decreases at the national level have been mild so far, with the biggest declines mainly seen in the largest and most expensive cities,” Urbanation president Shaun Hildebrand said in a news release.

“However, it appears that the softening in rents has begun to spread throughout most parts of the country.”

B.C. and Alberta recorded the largest decreases in June, with asking rents falling 3.1% year-over-year in each province to an average of $2,472 in B.C. and $1,741 in Alberta.

That was followed by Ontario’s 2.3% decrease to $2,329, Manitoba’s 1.3% decrease to $1,625 and Quebec’s 0.9% decrease to $1,960. Nova Scotia’s average asking rent ticked 0.1% lower to $2,268, while Saskatchewan was the only province to record year-over-year growth, at 4.2%, to an average of $1,396.

This article was written for Canadian Mortgage Trends by Sammy Hudes