In a recent interview with Todd Hirsch, renowned economist, speaker and author, he provided insights into the Bank of Canada’s latest interest rate decision, its implications for consumers, and how it compares to global economic trends.
Hirsch explained that the Bank of Canada adjusts interest rates primarily to control inflation and influence borrowing costs. When inflation rises or the economy overheats, the Bank raises interest rates to curb excessive spending. Conversely, lowering rates encourages borrowing and spending when the economy is sluggish.
Yesterday, the Bank of Canada chose to hold its interest rates steady at 2.75%, marking a pause after seven consecutive rate cuts. Hirsch noted that the decision reflects a challenging economic situation. While Canada’s economy is cooling, the threat of retaliatory tariffs from the United States is creating conflicting pressures—one that could slow down the economy, and another that could stoke inflation. This uncertainty prompted the Bank to maintain the current rate to allow for more flexibility in responding to future economic shifts, particularly if tariffs escalate.
For consumers, the Bank’s rate decisions directly influence borrowing costs, including mortgage rates. Though the Bank’s overnight rate doesn’t dictate mortgage rates outright, it sets a trend that lenders often follow. A modest change in rates can significantly affect monthly mortgage payments, especially for homeowners with variable-rate loans.
Looking internationally, Hirsch pointed out that central banks are navigating different economic challenges. While the U.S. Federal Reserve has held rates steady as its economy remains robust, the European Central Bank is cutting rates to counteract economic challenges stemming from geopolitical tensions, particularly the ongoing situation in Ukraine.
In this era of economic uncertainty, the Bank of Canada’s cautious approach to interest rates reflects a broader global trend of central banks carefully balancing inflation control with the need to foster economic stability.
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Entrepreneur. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 and 2024 as one of the top business journalists in the world by PR News. He was also named by RETHINK to its global list of Top Retail Experts 2024 and 2025.
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