As reported by the B.C. Real Estate Association's Chief Economist, Brendon Ogmundson:
In the statement accompanying the decision, the Bank of Canada highlighted a broad-based recovery in the Canadian economy over recent months, while underlining potential threats to its sustainability as headwinds persist. The Bank projects growth of just 0.7 per cent this year but expects the economy to expand by 1.8 per cent in both 2027 and 2028. On inflation, the Bank noted higher upside risks to its outlook as the ongoing Iran conflict and newly announced tariffs place further pressure on refineries and affected businesses alike, increasing the risk of spillovers into the prices of other goods.
Since the beginning of the Iran conflict, headline inflation growth has been largely driven by higher gasoline prices, while core inflation remains stable around the Bank’s 2 per cent target. As such, we expect the Bank of Canada to continue looking through the oil price shock and holding its policy rate at 2.25 per cent through 2026. However, the latest round of bilateral tariffs levied by Canada and the U.S. will place strain on affected businesses while raising the risk of pass-through into final prices. Additionally, improving economic and labour market conditions along with steady core inflation bias the Bank toward eventual rate hikes to 2.75 per cent, the midpoint of its neutral range.
That outlook, combined with elevated inflation in the United States, is tilting market expectations towards a possible rate hike from the Federal Reserve during the fall, placing upward pressure on five-year bond yields, which drive fixed mortgage rates in Canada. Consequently, fixed mortgage rates may continue edging higher as markets expect tighter monetary policy from the Federal Reserve and Bank over the medium term.
Copyright British Columbia. Real Estate Association. Reprinted with permission