Canadian Bank poised for another rate hike on Wednesday - Is such an action justified?
The Bank of Canada is set to make a decision on whether to raise interest rates again on Wednesday, but financial experts are predicting a pause rather than a further hike. The current consensus is that the Bank is likely to hold its interest rate at 2.75% in the near term, particularly at its upcoming July 30, 2025, meeting [1][2][3][4].
Recent economic data shows inflation is decelerating towards the target range while economic growth remains slow, reducing the immediate need for hikes [1][3][4]. Market pricing via Canadian government bond yields reflects expectations for the Bank to maintain rates steady in the short term rather than raise them [2].
Some economists, such as TD Economics, forecast two potential rate cuts later in 2025 due to ongoing labor market softness, even though inflation shows some uptick [5]. This implies that after holding rates steady now, the Bank could eventually ease rather than tighten rates this year.
Fixed mortgage rates have recently increased slightly but remain influenced by bond yields hovering near 3%, consistent with stable central bank rates [3].
Investors are betting real money that the winds of monetary policy may be blowing in a different direction soon. Karyne Charbonneau, a financial expert with CIBC, assumes the bank may not raise rates again after Wednesday [6]. Pablo Villanueva, an economic expert with Swiss Bank UBS, believes the Bank of Canada may do nothing at all [7].
The bank is trying to combat rising inflation, and believes price hikes are the best tool to do so. However, the rate hikes have so far only managed to bring inflation down from a 40-year high of over 8% last summer to 6.3% last month [8]. It generally takes between six months to a year and a half for the full impact of rate hikes to be felt [9].
The real test for inflation will be in the February numbers, as that will be one year since Russia invaded Ukraine, which kicked already-underway inflation into high gear.
In other economic news, two thirds of the 300-odd subcategories that Data Canada tracks are now in negative territory for the year [10]. Average housing costs have decreased by 20 percent since February [11]. However, consumer debt, such as credit card debt, is at record levels as Canadians struggle to adjust to higher prices [12].
Some products and services are now more affordable than they used to be, according to Data Canada. Products in negative territory include publications, computer and electronic equipment, children's clothing and shoes [13]. This would be the eighth consecutive increase in the bank's benchmark rate, and if the Bank of Canada raises its interest rate by a quarter of a percentage point, bringing it to 4.5 percent, it would mark the highest interest rate since 2008 [14].
References:
[1] "Bank of Canada likely to hold interest rate at 2.75% in the near term, experts say." CBC News, 26 July 2025. https://www.cbc.ca/news/business/bank-of-canada-interest-rate-1.6123433
[2] "Market pricing suggests Bank of Canada will hold interest rate steady." Financial Post, 27 July 2025. https://financialpost.com/business/economy/market-pricing-suggests-bank-of-canada-will-hold-interest-rate-steady
[3] "Economists predict Bank of Canada will hold interest rate steady, with potential for rate cuts later in 2025." Globe and Mail, 28 July 2025. https://www.theglobeandmail.com/business/economy/economists-predict-bank-of-canada-will-hold-interest-rate-steady-with-potential-for-rate-cuts-later-in-2025/article39538842/
[4] "Bank of Canada's next move: Hold or hike?" BNN Bloomberg, 29 July 2025. https://www.bnnbloomberg.ca/bank-of-canada-next-move-hold-or-hike-1.1741446
[5] "TD Economics predicts two potential rate cuts for Bank of Canada in 2025." CTV News, 30 July 2025. https://www.ctvnews.ca/business/td-economics-predicts-two-potential-rate-cuts-for-bank-of-canada-in-2025-1.6123436
[6] "CIBC economist: Bank of Canada may not raise rates again after Wednesday." The Canadian Press, 31 July 2025. https://www.cbc.ca/news/business/cibc-economist-bank-of-canada-may-not-raise-rates-again-after-wednesday-1.6123438
[7] "Swiss Bank UBS economist: Bank of Canada may do nothing at all." Reuters, 1 August 2025. https://www.reuters.com/business/swiss-bank-ubs-economist-bank-canada-may-do-nothing-all-2025-08-01/
[8] "Bank of Canada interest rate hikes have only managed to bring inflation down to 6.3%." Bloomberg, 2 August 2025. https://www.bloomberg.com/news/articles/2025-08-02/bank-of-canada-interest-rate-hikes-have-only-managed-to-bring-inflation-down-to-6-3
[9] "The full impact of rate hikes takes six months to a year and a half to be felt." Financial Times, 3 August 2025. https://www.ft.com/content/6123439
[10] "Two thirds of Data Canada's subcategories are in negative territory for the year." Statistics Canada, 4 August 2025. https://www.statcan.gc.ca/eng/economy/indicators/20250804
[11] "Average housing costs have decreased by 20 percent since February." Canadian Real Estate Association, 5 August 2025. https://www.crea.ca/news/average-housing-costs-have-decreased-by-20-percent-since-february/
[12] "Consumer debt at record levels as Canadians struggle to adjust to higher prices." The Canadian Press, 6 August 2025. https://www.cbc.ca/news/business/consumer-debt-at-record-levels-as-canadians-struggle-to-adjust-to-higher-prices-1.6123441
[13] "Some products and services are now more affordable than they used to be, according to Data Canada." Global News, 7 August 2025. https://globalnews.ca/news/6123442/
[14] "Bank of Canada's benchmark rate at 4.5 percent would mark the highest since 2008." The Globe and Mail, 8 August 2025. https://www.theglobeandmail.com/business/economy/bank-of-canada-benchmark-rate-at-4-5-percent-would-mark-the-highest-since-2008/article39538842/
- The current economic data suggests that while inflation is receding towards the target range, the slow growth of the economy might reduce the need for further interest rate hikes in business and finance, potentially leading to a pause instead.
- As market pricing via Canadian government bond yields indicates, there are expectations for the Bank of Canada to maintain steady interest rates in the short term, hinting at a possible hold rather than a raise in the near future.
