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Bank of Canada holds at 2.25% but warns upside risks to inflation have grown

The Bank of Canada left its policy rate at 2.25% on September 2, citing a strong second quarter, gasoline-driven inflation near 3% and new uncertainty from U.S. tariffs.

By John Wilson · September 2, 2026

The Bank of Canada left its benchmark interest rate unchanged at 2.25% on September 2, keeping the Bank Rate at 2.5% and the deposit rate at 2.20%. The decision itself was no surprise, but the tone was firmer: Governing Council said upside risks to inflation have increased and that it is prepared to adjust monetary policy as needed.

Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers explained the decision at a press conference held by teleconference. Macklem said the new U.S. tariffs are expected to hit targeted sectors hard.

What the Bank saw

Growth: GDP grew 3.3% in the second quarter after a very weak first quarter, with gains spread across consumption, housing, exports and business investment.
Jobs: the unemployment rate edged down to 6.4% in July, though the Bank still sees excess supply in the economy.
Inflation: consumer price inflation has been near 3%, mostly because of higher gasoline prices. Excluding gasoline, inflation was 2.2% in July, and the Bank's core measures remain close to 2%.
Financial conditions: long-term bond yields have risen and financial conditions have tightened since July.

The global backdrop

The Bank pointed to a crowded list of outside risks. The conflict in the Middle East is keeping energy prices high, while new U.S. tariffs and Canadian counter-measures have added uncertainty for trade-exposed industries. Elsewhere, U.S. growth remains solid, euro area growth beat expectations in the second quarter, and China's economy slowed.

The key concern for the Bank is whether high oil prices spread from the gas pump into the prices of other goods and services. If they do, inflation could stay above the 2% target for longer than forecast.

The counter-argument

There is also a case that rates are already where they need to be. Core inflation is close to target, wage growth has cooled and the Bank itself says the economy still has slack. Tariffs are a hit to growth as much as a lift to prices, and the latest trade escalation could slow hiring in manufacturing and transportation this autumn.

That two-sided risk is why markets are split. Perch, a mortgage brokerage, noted that markets put roughly even odds on a quarter-point increase by the end of 2026, a sharp change from the rate-cut talk of a year ago.

What it means for Canadian households

For borrowers, nothing changes immediately: payments on variable-rate mortgages and lines of credit linked to prime stay the same. But fixed mortgage rates are priced off bond yields, and the Bank noted those have risen since July. Homeowners renewing in the coming months may face higher fixed-rate offers than they expected earlier this year.

For savers, a hold keeps high-interest savings and GIC rates roughly stable for now. The next decision is scheduled for October 28, alongside a new Monetary Policy Report. Households weighing a fixed or variable mortgage should stress-test their budget for a scenario in which rates move higher rather than lower. This is general information, not personalized advice.

Sources

General news and information, not individualized financial advice. Figures reflect the publication date.