On September 2, 2026, the Bank of Canada announced that it is maintaining its target for the overnight rate at 2.25%, with the Bank Rate at 2.50% and the deposit rate at 2.20%.

The decision comes as Canada's economic recovery continues to broaden, with stronger growth in the second quarter and improving labour market conditions. However, uncertainty remains elevated as the ongoing conflict in the Middle East keeps energy prices high and new US tariffs and Canadian counter-measures create additional risks for the economy.

While inflation remains around 3%, much of the recent increase continues to be driven by higher gasoline prices. Underlying inflation remains closer to the Bank's 2% target, although the risk of higher energy costs spreading to other goods and services has increased.

Global Economic Outlook Remains Uncertain

Global economic conditions continue to show resilience despite significant geopolitical and trade-related challenges.

In the United States, economic growth remains solid, supported by consumer spending and continued investment related to artificial intelligence. Growth in the euro area was stronger than expected in the second quarter, while China's economy has slowed.

Overall, global growth remains broadly in line with the Bank's July Monetary Policy Report projection. However, higher oil prices and elevated margins for refined energy products are keeping inflationary pressures elevated in many countries.

Financial conditions have also tightened since July, with long-term bond yields moving higher globally, including in Canada. The Canadian dollar has appreciated slightly as the US dollar has weakened.

Canadian Economy Showing Broader Signs Of Recovery

Canada's economy strengthened significantly in the second quarter, with GDP increasing by 3.3% following very weak growth in the first quarter.

Although some of this improvement reflected temporary factors, the recovery was broad-based. Consumer spending posted solid gains, housing activity rebounded following several weak quarters, and both exports and business investment increased sharply.

Labour market conditions have also improved in recent months. Canada's unemployment rate edged down to 6.4% in July.

Overall, recent data reinforce the Bank's view that Canada's economic recovery is becoming broader. However, new US tariffs and the possibility of further trade action continue to create uncertainty around the outlook for economic growth.

Inflation Remains Elevated But Underlying Pressures Are More Contained

Consumer Price Index inflation has remained around 3% in recent months, primarily due to persistently higher gasoline prices.

So far, there has been limited evidence that higher energy costs are spreading broadly through the economy. Excluding gasoline, inflation was 2.2%, while the Bank's preferred measures of core inflation remained close to 2% in July.

However, inflation risks have increased. The ongoing conflict in the Middle East, combined with limited progress toward reopening the Strait of Hormuz, could keep oil prices elevated for longer.

The longer high oil prices and elevated refinery margins persist, the greater the risk that higher energy costs begin affecting the prices of other goods and services.

New US tariffs and Canadian counter-tariffs could also increase costs for some businesses and potentially put additional pressure on consumer prices over time.

Policy Decision And Outlook

With the economy and inflation evolving broadly in line with the Bank's July Monetary Policy Report, the Governing Council determined that maintaining the policy rate at 2.25% remains appropriate.

At the same time, the Bank recognizes that the risks have become more balanced in some areas and more uncertain in others. Upside risks to inflation have increased, while new tariffs and ongoing trade tensions have made the outlook for economic growth less certain.

The Bank will continue assessing the sustainability of Canada's economic rebound and the outlook for inflation. It remains prepared to adjust monetary policy as needed to maintain price stability and Canadians' confidence in the purchasing power of their money.

What This Means For Buyers And Sellers

For home buyers, homeowners, and sellers, the decision to hold the policy rate at 2.25% means borrowing costs remain unchanged for now. The continued stability in the overnight rate provides some predictability for those considering a move, refinancing, or renewing a mortgage.

At the same time, the Bank's comments highlight that future rate decisions will depend heavily on inflation, economic growth, energy prices, and developments in US-Canada trade.

For buyers and sellers, this means staying informed remains important as the Canadian housing market responds to changing economic conditions.

Looking Ahead

The next scheduled interest rate announcement is October 28, 2026, when the Bank will also release its next Monetary Policy Report.

For now, the policy rate remains unchanged at 2.25% as Canada's economy continues its recovery. However, elevated inflation risks and ongoing global and trade uncertainty mean the Bank will be closely watching incoming economic data before making future decisions.

Have questions about how this may impact your buying or selling plans? Contact us today to discuss your next steps in today's market.