Central bank's latest statement suggests it's in no hurry to bring rates lower, says BMO chief economist
While more Bank of Canada interest rate cuts are likely on the way before the end of the year, homeowners and buyers shouldn’t count on borrowing costs plummeting anytime soon.
The central bank opted to keep its benchmark rate unchanged in Wednesday’s decision, the second time in a row it’s held rates steady after a run of seven straight cuts stretching back to last June.
Bank of Montreal (BMO) chief economist Doug Porter (pictured top) still expects the central bank to return to rate cuts at some point in the months ahead, but told Canadian Mortgage Professional its latest language suggests it’s in no hurry.
“The Bank is maybe a little more cautious about cutting rates than I expected, looking ahead,” he said. “They’ve sounded concerned about the possibility of inflation flaring up as a result of the trade war all along – so they’ve always been a little bit on the cautious side. But in their forward-looking statement, it sounded like there was really no doubt in their mind about what was the correct decision [on Wednesday].
“They said there was a clear consensus in the Governing Council to keep rates unchanged. And there’s a mixed view on where rates are going next. Our view is that the Bank is not finished – that there are more rate cuts ahead. But that doesn’t seem entirely obvious, at least to the Governing Council.”
The reason for that caution is clear: the prospect of a spike in inflation in the coming months as Donald Trump’s trade war rumbles on. Underlying price pressures have already proven stickier than expected, with core inflation measures increasing in April despite a drop in the headline consumer price index (CPI).
Porter said he sees the negative effect of the trade war on growth ultimately keeping a lid on serious inflation pressures, while energy prices are expected to remain low for the foreseeable future.
The Bank of Canada has opted against cutting interest rates in June, holding its benchmark rate steady amid concern over a potential inflation uptick in the months ahead.https://t.co/AsEcFRJf3O
— Canadian Mortgage Professional Magazine (@CMPmagazine) June 4, 2025
But memories of 2022, when inflation soared on the back of rock-bottom interest rates during the COVID-19 pandemic, could keep the Bank in a cautious mood.
“I’m not especially concerned about inflation going ahead. The bottom line is, I still think the Bank will ultimately cut interest rates more,” he said. “But it’s going to take time. The Bank is in no rush to cut further.”
Central bank may have time on its side as it weighs up next decision
The central bank isn’t scheduled to meet for its next decision until the end of July, meaning it has the unusual advantage of two more job reports and two more inflation readings before its next call.
That “entire slate” of economic data for two whole months will give it plenty of time and evidence to assess how the economy is reacting to Trump’s tariffs, Porter said, with BMO currently viewing a cut as the most likely outcome of its July decision.
But the chaos permeating Trump’s global tariff war – which saw levies on steel and aluminum imports doubled this week – means nothing can be taken for granted, particularly amid threats to employment and the growing fear of mass layoffs.
How concerning are rising mortgage delinquency rates?
Mortgage delinquencies jumped in the first quarter of the year, spiking in Ontario and British Columbia, and Porter said serious deterioration in the job market could be especially concerning for that trend.
“I would say the upward trend in delinquencies is not a big surprise. People have been flagging the renewal risk for the last couple of years,” he said. “And we’re starting to see that at least to a small extent in recent months, those who took five-year mortgages in 2020 are now starting to face some pretty serious news here.
“We’ve known this was coming for quite some time, and that’s probably going to create at least a little bit more stress. But I do think the bigger risk would be if we saw marked weakening in the job market. I’d be a lot more concerned about that and what that might mean for an upswing in delinquencies.”
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