The Bank of Canada held its overnight lending rate steady again, a decision that may disappoint both commercial property professionals and consumers who had hoped for further cuts.
After pausing rate cuts in April for the first time in a year, the central bank said Wednesday it is keeping its trend-setting rate at 2.75%, the third straight decision with no movement up or down. The Canadian central bank has already cut its overnight lending rate by 225 basis points since last year, giving it one of the world's lowest rates.
Canada's central bank most recently reduced its overnight lending rate by 25 basis points in March and again on Jan. 29. Last year, the Bank of Canada lowered interest rates in June, July, September, October and December.
"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," the central bank said in a statement. "Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy."
The central bank cited concerns about higher tariffs imposed by the United States, saying they are reducing demand for Canadian exports. The Bank of Canada also said it is worried about how much and how quickly the cost increases from tariffs and trade disruptions will be passed on to consumers and affect inflation. As a result, the bank also said it is monitoring how much the trade war will affect business investment, employment and household spending.
A number of Canadian real estate industry executives have been urging rate cuts to ease financing of what they say is much-needed new housing construction in the country. Some have publicly bemoaned the Bank of Canada's refusal to continue with a series of quarter-point cuts over a year before halting this spring.
Weathering economic uncertainty
Mark Fieder, a principal and president of Avison Young Canada, said he was not surprised by the Bank of Canada's decision.
"We've been weathering uncertainty and unpredictability, not solely in commercial real estate but in the overall economic landscape, so I expect the (Bank of Canada) will take the summer to further assess volatility," he told CoStar News via an email.
The decision is unlikely to be greeted with enthusiasm by consumers, with two out of three Canadians saying they "desperately need interest rates to go down," according to Calgary-based financial firm MNP's recent consumer debt index survey.
Canadian consumers are increasingly seeing their buying power erode, as inflation rose 1.9% in June, a hike from the 1.7% seen in May, according to new numbers released by Statistics Canada.
Financial pressures caused by inflation and higher interest rates caused 64% of adult Canadians to say they "desperately need" a drop in rates, while 36% "feel anxious or stressed about their financial situation," according to an Ipsos survey of 2,000 adult Canadians conducted MNP.
The Calgary company said the results indicate that Canadians are enduring the most intense financial strain since the recent pandemic health scare.
"Canadians have not witnessed such economic uncertainty since the COVID-19 pandemic," MNP President Grant Bazian said in a note. "While financial perceptions have somewhat stabilized, many households feel like their lives are on hold, stuck in a financial holding pattern as they wait for the proverbial dust to settle."
Looking to September
Still, several executives said they hope the assessment made between now and the next meeting of the central bank on Sept. 17 results the central bank lowering the interest rate.
"The Bank will have a fuller picture of tariff repercussions, cost pressures, and other economic indicators. Come that time, I am hopeful for a rate cut," Avison Young's Fieder said. "While many of our less-cautious clients have already started to come off the sidelines to initiate deals, we anticipate a fall rate cut would bring more movement, particularly in industrial, multifamily, and office. I would not count out office; it will re-emerge as a real opportunity for investors."
Governor Tiff Macklem told reporters during a press conference Wednesday that despite United States tariffs, inflation was close to the bank's 2% target.
"U.S. tariffs are still too unpredictable to be able to provide a single forecast for the Canadian economy," said Macklem, adding the central bank has multiple scenarios to capture the uncertainty around United States trade policy.
Andrew Grantham, an economist with CIBC, noted the central bank said there "may" be the need for a further reduction in the future.
"Overall, the Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future," said Grantham. "However, it is clearly not there yet and upcoming data will remain more important that today's slight change in language in determining if that support comes at the September meeting as we currently forecast."