The Economic Brief – The Bank of Canada holds firm on interest rates: Is relief on the horizon?

Avery Shenfeld: The Bank of Canada opted to not cut interest rates in June. While it recognized that the Canadian economy was slowing and in need of some relief, it remains concerned that tariffs will cause inflation to heat up, and also a bit uncertain as to where that tariff world is going right now. Our view is that for those who are still hopeful for a break on a variable rate mortgage, for example, that we will see a couple more interest rate cuts over the balance of the year, as the growth concerns are going to likely end up outweighing any concerns over inflation. We see the inflation impacts of Canadian tariffs as being relatively modest and short lived, while the growth impacts of tariff uncertainty, not just on exports, but on a broad array of Canadian companies, is likely to mean that we see very little, if any, economic growth over the next couple of quarters. Ultimately, right now, if we look at the interest sensitive side of the Canadian economy, it’s not getting much benefit from where interest rates are right now. Home sales are quite soft. Housing construction is quite weak… That’s particularly true in the condo market, where there’s excess supply… And even business investment spending likely is likely to slow because the uncertainties over trade could outweigh the benefits of lower borrowing costs than we had a year or two ago.