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Canada’s Rate Hike Risk: Are We Near the Edge?
By Validus - 15 September 2025
Kambiz Kazemi, Chief Investment Officer
Summary
Kambiz Kazemi talks about the growing risk that another interest rate hike from the Bank of Canada could push the economy past a sensitive point. Inflation is easing, but core inflation is still high, unemployment is creeping up and Canadian households are carrying some of the highest debt levels in the world. Because mortgages in Canada reset more quickly than in the U.S., many homeowners are already feeling the pressure of higher rates and another increase could push a large share of variable-rate mortgages past their trigger rates.
Takeaways
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Canada heads into 2025 with households carrying high debt levels, and many mortgages set to renew at higher rates
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Markets are split on whether the Bank of Canada will raise rates again
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Inflation has cooled, but core CPI is still high at 3.9%
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Unemployment is rising and now at its highest level since last August
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Canadian households carry debt at about 1.8× their disposable income
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Short mortgage terms mean Canadians feel rate hikes faster than Americans
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Many variable-rate mortgages are close to hitting their trigger rates
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Banks are reacting with higher payments, longer amortizations, or negative amortization