Bank of Canada Holds Rate at 2.25% as Inflation Risks Rise
Are rate hikes on the horizon?
The Bank of Canada held its overnight lending rate steady at 2.25% where it has now remained for almost a year. This move was widely expected by analysts.
In a scheduled announcement on Wednesday, September 2, 2026, the bank announced that Gross Domestic Product (GDP) grew by 3.3% in the second quarter, while the unemployment rate edged down to 6.4% in July. Combined with persistently high oil prices, the risk of broader inflationary pressures and the potential impact of Canadian counter-tariffs taking effect September 8, these factors could shift the probability back towards a potential rate hike in the not-too-distant future.
Inflation fears around the world are once again already causing financial conditions to tighten. The Bank noted that, “long-term bond yields have moved up globally, including in Canada,” which means borrowers are already facing higher fixed mortgage rates, similar to what happened back in March and April 2026.
Mitigating factors listed by the Bank include subdued labour demand despite the lower unemployment rate, ongoing signs of excess supply in the economy, and less certainty about the durability of recent economic gains owing to the incoming suite of new tariffs on both sides of the border.
On balance, the dominant theme of the announcement was that the Bank was concerned that “upside risks to inflation have increased,” and that it was “prepared to adjust monetary policy as needed.”
This shift in tone does not mean that imminent rate hikes are a done deal, but it does pull the potential date of a hike forward, putting the prospect back on the table for one of the two scheduled meetings before the end of 2026. The odds of a change in policy will rise or fall depending on how conditions and incoming data evolve in the weeks ahead.
The Bank of Canada will make its next scheduled interest rate announcement, which will be accompanied by an update to the Monetary Policy Report, on October 28, 2026.
