Factors Influencing Rate Decisions

Economic Growth

• The economy is facing a period of weak growth as US tariffs and uncertainty over the future of the USMCA weigh on exports and investments.
• Uncertainty = Limited Investment
• Forecast of weak GDP growth moving forward – just 1% annualized for 2025

Activity and Employment

• Weakness in the rental market is likely to weigh on residential investment. Muted hiring in those sectors means employment is set to stagnate for the next few quarters, with the unemployment rate rising to an estimated peak of 7.3%.

Inflation

• The scrapping of the carbon tax means headline inflation should remain within the Bank’s 1% to 3% target range. Core inflation is set to be high, near 3%. The big difference with the post-pandemic experience is that demand will be much weaker.

Job Data Exceeds Expectations

• Job creation: +83k (est. +2k | prior +9k)
• Unemployment: 6.9% (est. 7.1% | prior 6.9%)
• Hourly wages: 3.2% (prior 3.5%)
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This was 2025’s largest job tally to date. 70k of the gains were part-time (many summer jobs). Having a pay cheque, even a small one, is still better than the alternative.

Private sector (+47k), factory work (+11k) and full-time jobs for those aged 25+ (+9k) were all positive. Moreover, age 25-54 employment was +90.6k, a new record if you exclude the COVID rebound.
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The 83,000 increase in employment in June marks the largest gain since December last year.

Canadian Inflation

• Headline (y/y): 1.9% (est. 1.9% | prior 1.7%)
• Headline (m/m): 0.1% (est. 0.1% | prior 0.6%)
• Average core (y/y): 3.05% (est. 3.00% | prior 3.00%)
• Breadth (% of basket over 3%): 39.1% (prior 37.3%)

USA Inflation

• Headline (y/y): 2.7% (est. 2.6% | prior 2.3%)
• Headline (m/m): 0.3% (est. 0.3% | prior 0.1%)
• Core (y/y): 2.9% (est. 2.9% | prior 2.8%)

Rates

The above employment numbers above shaved 15 percentage points off BoC cut probabilities.

Underlying inflation is also too strong for July cut and September in now in question as well.

Here’s where the bets now stand:

• For the Bank of Canada meeting on July 30:
  • 25 bps cut: 16% chance
  • No change: 84% chance
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• For the Federal Reserve meeting on July 30:
  • 25 bps cut: 7% chance
  • No change: 93% chance

Fixed rates may also trickle up with rise in the 5 year bond yields. We are now at the highest point since Jan of 2025.

CMHC Boosts Rental Supply

In 2024, CMHC held $213 billion in insurance on multi-unit apartment buildings, up from $168 billion the year prior. Meanwhile, insurance on single-family homeowners fell to $162 billion.

For the first time in its history, CMHC’s book is led not by the dream of ownership, but by the machinery of rent.

Follow the money and the picture sharpens further. CMHC collected $1.67 billion in premiums and fees from the multifamily segment alone, a 73% jump year over year.

Rental underwriting is now the single largest driver of the agency’s insurance revenue.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 4.39%
• 3 year fixed, 30 yr amortization – 4.30%
• 2 year fixed, 30 yr amortization – 4.84%
• 5 year variable, 30 yr amortization – Prime – 0.40% = 4.55%
• 5 year fixed, 25 yr amortization – 4.29%
• 3 year fixed, 25 yr amortization – 4.30%
• 2 year fixed, 25 yr amortization – 4.74%
• 5 year variable, 25 yr amortization – Prime – 0.50% = 4.45%

INSURED

• 5 year fixed, up to 30 yr amortization – 4.19%
• 4 year fixed, up to 30 amortization – 4.24%
• 3 year fixed, up to 30 amortization – 4.09%
• 5 year variable, up to 30 amortization – Prime – .75% = 4.20%

Fast Facts

• 2.1% – The cap Ontario has put on rent increases in 2026, following three consecutive years where the guideline was held at 2.5%.
• 31,600 – The number of active listings in the GTA by the end of June, marking a near quarter-century high.
• $6 billion – Revenue that exporting 30 million tonnes of LNG per year would generate for the provincial and federal governments, according to a Natural Resources Canada estimate.
• 106,134 – People who permanently left Canada last year, a 10-year high and up from 68,945 in 2015. Some tax experts are concerned about an exodus of wealthy people from the country.