The Bank of Canada held is benchmark overnight interest rate at 2.75 per cent Wednesday, as it continues to assess the impacts of a trade war with the U.S. on the economy.

Leaving the interest rate unchanged for the second month in a row, the decision by the central bank reflects uncertainty over Canada’s economic fortunes. Canada beat expectations for economic growth in Q1, but a slowdown is anticipated because of U.S. tariffs on Canadian goods.

“Uncertainty remains high,” Bank of Canada governor Tiff Macklem said in the morning media briefing. “The Canadian economy is softer but not sharply weaker. And we’ve seen some firmness in recent inflation data.”

Housing sales and starts activity has been lower in recent months, driven by a sharp contraction in resales, the Bank of Canada said. That is likely to continue as Canada’s economy is expected to be “considerably weaker” in Q2, “with the strength in exports and inventories reversing and final domestic demand remaining subdued.”

The economic uncertainty has had both positive and negative effects on Canada’s housing market.

Tapering interest rates have made it easier for prospective buyers to purchase a property and lowers costs for construction and development activity. But stubbornly high prices due to an ongoing housing shortage, and the ever-shifting trade war has also led potential buyers and industry players to stay on the sidelines until there is a clearer idea for how the economy will develop.

Impact on the housing and real estate sector

The Bank of Canada looks to be focused on maintaining stability as the labour market shows signs of softening, Phil Soper, the president and CEO of Royal LePage, said in an emailed statement to RENX Homes.

“In the country’s most expensive real estate markets, sales activity remains stalled, even as conditions increasingly favour buyers with more inventory and reduced competition,” he added.

“Understandably, many potential buyers remain cautious in the face of economic uncertainty. For consumers, today’s rate hold offers a measure of predictability in borrowing costs, especially for those with variable-rate mortgages or planning to enter the housing market in the near future.”

Leaving the interest rate unchanged is “extremely disappointing” for the real estate sector said Leor Margulies, a partner and lawyer of the commercial real estate and development group of Toronto-based law firm Robins Appleby.

The new home industry, he said, is “basically stalled with no new sales and no new launches”. Interest rates are still too high, Margulies added, which is contributing to the stagnation for new homebuyers and builders.

"A reduction, however small, would have sent a positive signal for homebuyers and helped give confidence to homebuyers that rates are moving in the right direction, coupled with the federal announcements on GST reductions,” he concluded.

Bank of Canada holds rate for second month

The two-month hold on rates reflects a change in the bank's policy after a year of interest rate cuts. Since June 2024, the Bank of Canada began trimming the overnight interest rate from five per cent after seeing success with its efforts to bring down inflation.

But since the U.S. government began to order tariffs on Canadian goods and vice versa, with the policies often in flux, Canada’s central bank stopped its rate cuts to manage any potential resulting inflation from the trade war.

“Faced with unusual uncertainty, governing council is proceeding carefully, with particular attention to the risks,” Macklem said. “This means we are being less forward-looking than usual.”

But if the economic uncertainty and tariffs continue to weaken the Canadian economy while the cost pressures of inflation are contained, there could be a need to further reduce interest rates, he said in response to a question.

EDITOR'S NOTE: This article has been updated with additional quotes and information.