The Bank of Canada opted not to lower interest rates for the first time in more than a year and warned that monetary policy cannot address tariffs, reflecting a new reality for real estate and other industries.
With the move, the central bank's trend-setting rate remains at 2.75%, affecting short-term borrowers with loans tied to prime lending rates.
The central bank reduced the overnight lending rate by 25 basis points in March and again on Jan. 29.
Last year, the Bank of Canada lowered interest rates in June, July, September, October and December.
"Financial markets have been roiled by serial tariff announcements, postponements and continued threats of escalation," the bank said in a statement. "Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What it can and must do is maintain price stability for Canadians."
In a press conference, Bank of Canada Governor Tiff Macklem said the protectionist shift in American trade policy has increased uncertainty in the financial markets.
"The path for U.S. trade policy remains highly unpredictable," said Macklem. "We still do not know what tariffs will be imposed, whether they'll be reduced or escalated, and how long all of this will last. We decided to hold our policy interest rate unchanged as we gain more information."
John Creswell, executive managing director and global head of capital at Trez Capital, said the past rate cuts provided a boost to a Canadian economy that had been slowing compared to the United States.
"They are having a positive effect," Creswell said in an interview. "There is just so much uncertainty out there [to make the case] for a pause."
Policy changes needed
While tariffs are affecting the economy, Creswell said structural changes need to be made, and that could occur after the April 28 election for a new federal government. In the election, the Liberal Party and Prime Minister Chair Mark Carney face off against the Conservative Party of Canada and its leader, Pierre Poilievre.
"What has been lost in this tariff discussion is that over the last couple of years, taxes have increased," Creswell said. "Canada is less competitive for investment because we are less hospitable to capital."
Lower rates have masked some of the issues Canada is facing, said Creswell, whose diversified real estate investment firm provides private commercial real estate debt and equity financing across North America.
"Is it working? Of course," Creswell said of the central bank lowering rates. "On a new development project, you always project the prime rate, and you usually project that it is going up. You project a negative scenario. (When) rates come down, it is meaningful. It reins in costs."
Creswell said lower rates helped developers start new projects, kickstart stalled ones, and refinance existing ones.
"It has definitely helped all of that," he said. "A pause is still very positive. Rates are much lower. The combination of already existing lower rates that have been in the system for six months and getting past the election is good for Canada."
Luke Simurda, director of research in Canada for Marcus & Millichap, said this pause could signal to the market that the monetary easing cycle is closer to completion than people originally expected and that bond yields may be bottoming or at least stabilizing. Easing typically occurs when a central bank tries stimulating a country's economy through increased money flow and lower interest rates.
"Combined with softening prices over the past year, this could actually present an attractive opportunity for investors who have a long-term strategy to enter the market. Underlying fundamentals remain sound for most major assets, but just as important, the under-construction pipelines are also coming down, which will curb supply-side pressures," said Simurda, in a comment to CoStar News. "So while fundamentals may soften over the shorter term, I still think long-term performance metrics will hold. Combined with the belief that real estate offers stability, it could present opportunities."
Transactions hang in the balance
Mark Fieder, principal and president of Avison Young Canada, said the decision to hold interest rates where they are is unfortunate. He expects it to slow or halt many transactions that have been on the sidelines, anticipating further rate cuts.
"We recognize the bank's rationale is informed by greater issues at play in the broader economic landscape," Fieder said in a comment to CoStar News. "Looking ahead, we have a watchful eye on tariff decisions and the repercussions on the commercial real estate industry, particularly in the industrial sector."
The bank's decision to hold interest rates steady comes as home prices and sales activity continue to decline in Canada.
The Ottawa-based Canadian Real Estate Association said sales for all classes of housing were down 9.3% year over year in March and at the lowest level for that month since 2009. The national average sale price dropped 3.7% year over year.
"Up until this point, declining home sales have mostly been about tariff uncertainty," said Shaun Cathcart, senior economist with the association, in a commentary. "Going forward, the Canadian housing space will also have to contend with the actual economic fallout. In short order, we've gone from a slam dunk rebound year to treading water at best."
Royal LePage CEO Phil Soper said resolving the tariff issue and picking a new government should help the industry.
"Canada's housing fundamentals remain strong, and real estate activity tends to rebound quickly when uncertainty lifts," said Soper, leader of one of Canada's largest residential brokerages, in a commentary. "Beyond trade, getting the federal election behind us should help here."
Doug Porter, chief economist with Bank of Montreal, noted it was the first hold in almost a year.
"It's tough to characterize the tone of the bank's stance, as it indicates that it both is prepared to act decisively and yet will proceed carefully and be less forward-looking than usual until the situation becomes clear," said Porter in an economic note on the decision.
He called 2025, "the year of deciding dangerously."