A 2.25% overnight rate for a full year would keep relief limited for borrowers
The C.D. Howe Institute’s Monetary Policy Council urged the Bank of Canada to keep its overnight rate at 2.25% for the next 12 months, underscoring how fragile the outlook remains for growth, inflation and housing – and how little rate relief mortgage borrowers are likely to see in the near term.
Acting as a shadow governing council, the 10‑member panel called for the policy rate to stay at 2.25% at the March 18 announcement, at April’s decision and through September 2026, with a median call of 2.25% even by March 2027.
All 10 members backed no change through September, with only two pencilling in a move to 2.50% by next March.
“The consensus to keep the overnight rate target unchanged over the first six months of the year, and the near unanimity one year out, reflected uncertainty over the war in Iran, its impact on oil prices, and the implications for the Canadian economy,” the council said.
“As monetary policy works with a lag, the question is not where oil prices are today, but where they will be later in the year.”
Members warned that while “some increase can be good for the Canadian economy…a significant increase will hurt global growth, which will negatively impact Canada.”
They compared the current supply‑side shock to the supply chain disruptions of the pandemic, but noted that “the US economy is not in as strong a position today, with recent weakness in labour markets, and inflation that remains stubbornly above target.”
Weak growth, soft housing
Beyond geopolitics, the council pointed to a string of domestic headwinds.
“Data in the final quarter of 2025 was weak, and bad weather in early 2026 likely got the economy off to a poor start,” it said, highlighting falling exports and imports and a wider trade deficit alongside “business investment [that] continues to struggle, in part driven by uncertainty over CUSMA.”
Housing is no longer providing its usual cushion. “Housing markets are experiencing weak sales and falling prices,” the council said. “As a result, the economy will not get the typical boost from the housing wealth effect it often gets.”
The group added that concerns over mortgage renewals “have not been borne out in part because the rates people are renegotiating at are similar to those they would have faced as part of their stress test on the original loan.”
For mortgage professionals, a long hold at 2.25% would cement what analysts have described as a flat part of the cycle rather than the start of an aggressive easing path.
Broker Leah Zlatkin recently said, “We’ve moved into a much more normalized rate environment,” adding that “there’s no clear signal that rates are heading materially lower.”
Limited relief for borrowers
The Bank of Canada itself signalled that a 2.25% policy rate sat near the bottom of its estimated neutral range of 2.25% to 3.25%, suggesting little urgency to cut further unless growth or inflation surprised sharply.
That stance aligns with private‑sector forecasts calling for the overnight rate to remain around current levels through 2026, with only modest increases by 2027.
For variable‑rate borrowers, a prolonged plateau meant carrying costs would remain stable rather than falling. Fixed‑rate clients would continue to take their cue from bond yields rather than central bank action, with little sign of a deep reset in five‑year money.
The council also flagged a potential “stagflationary environment” if higher oil and food prices collided with a weak economy – a risk that could unsettle inflation expectations and keep the policy rate pinned close to neutral for longer than borrowers might hope.
Whether that scenario plays out would shape not only the timing of any future cuts, but also how Canada’s mortgage market absorb a heavy pipeline of renewals over the next two years, a wave earlier estimates put in the range of more than a million loans nationally.
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