The Bank of Canada held its overnight rate target at 2.25% on September 2, marking the seventh consecutive decision without a change and matching what most economists had expected heading into the meeting. The Bank Rate stood at 2.5% and the deposit rate at 2.20% following the announcement, with the central bank pointing to a stronger-than-anticipated domestic economy, including second-quarter GDP growth of 3.3% and an unemployment rate that eased to 6.4% in July, as justification for staying on hold rather than moving in either direction.
Governor Tiff Macklem used the accompanying press conference to flag that inflation risk is building, driven primarily by higher energy costs and Canada's own counter-tariffs on U.S. goods rather than by domestic demand pressures. "Monetary policy cannot offset the effects of tariffs or influence global energy prices," Macklem told reporters, adding that the Bank's role is instead to ensure such developments do not "jeopardize price stability in Canada." He characterized the inflationary impact of the counter-tariffs themselves as "fairly modest" for now, since they apply to a relatively narrow base of goods, but said policymakers stood ready to raise borrowing costs multiple times should inflation prove more persistent than expected.
That warning was echoed in Statistics Canada's August inflation report, published in the days after the decision, which showed headline CPI holding steady at 3.0% year-over-year, in line with forecasts. Gasoline prices were the main driver of the headline figure, while core inflation measures stayed closer to the Bank's 2% target, a mix that reinforced the case for keeping rates unchanged rather than reacting to a single month's data.
Where the picture becomes less settled is the outlook for the Bank's next scheduled decision on October 28, which will be accompanied by an updated Monetary Policy Report. A clear split has emerged among Canada's largest banks: BMO, CIBC, RBC and TD are forecasting the policy rate will remain at 2.25% through the end of 2026, while National Bank and Scotiabank have broken from that consensus to project a move to 2.50% in October, with a further increase to 2.75% by December.
The divergence reflects genuine uncertainty over how much of the current tariff dispute with Washington will feed through into consumer prices. Ottawa's retaliatory tariffs, worth roughly CA$27.6 billion, took effect earlier this month as the trade rift with the United States deepened, doubling duties on Canadian steel and aluminum shipments to 50%. Washington has since added its own import restrictions on a range of Canadian goods, including motorcycles, alcohol and dairy products, due to take effect later in September, adding another layer of cost pressure that the Bank will need to weigh at its next meeting.
For now, the Bank of Canada's public position remains that policy is appropriately calibrated to a domestic economy that is running hotter than expected while inflation sits within a tolerable range of target. Macklem's language around being prepared to act "multiple times" if needed suggests the Bank is not ruling out tightening, but the October decision will likely hinge on how the trade dispute evolves and whether the next round of inflation data shows tariff and energy costs beginning to broaden beyond the categories currently driving the headline number.