The Bank of Canada has maintained its target for the overnight interest rate at 2.25 per cent, marking the seventh consecutive decision in which the central bank has left borrowing costs unchanged. The decision, announced on September 2, came as Canada’s economy showed signs of a broader recovery, while inflationary and geopolitical risks continued to cloud the outlook.
The decision was widely anticipated, with the Bank keeping the Bank Rate at 2.5 per cent and the deposit rate at 2.20 per cent. According to the Bank of Canada, recent economic data have evolved broadly in line with the July Monetary Policy Report, supporting the decision to leave the policy rate unchanged.
Economic Recovery Gains Momentum
Canada’s economy strengthened significantly in the second quarter of 2026. Real GDP increased by 3.3 per cent, following very weak growth in the first quarter. The Bank noted that although some of the recent improvement reflected temporary factors, the recovery was relatively broad-based.
Consumer spending remained resilient, while housing activity showed signs of improvement after several weak quarters. Exports and business investment also increased sharply, providing additional support for economic activity.
Labour market conditions have improved as well. The unemployment rate edged down to 6.4 per cent in July, although the Bank cautioned that labour demand remains subdued and that there is still excess supply in the Canadian economy.
The Bank therefore sees evidence of a “broadening recovery” in Canada. However, Governor Tiff Macklem stressed that the sustainability of this rebound has become more difficult to assess due to the changing international trade environment.
Inflation Risks Remain Elevated
Despite the improvement in economic activity, inflation remains a key concern for policymakers.
Consumer price inflation has been hovering around 3 per cent in recent months, largely driven by persistently high gasoline prices. At the same time, the underlying inflation picture remains comparatively contained. Excluding gasoline, inflation was 2.2 per cent in July, while measures of core inflation remained close to the Bank’s 2 per cent target.
The Bank has nevertheless identified growing upside risks to inflation. The continuing conflict in the Middle East has kept global energy prices elevated, while disruptions affecting shipments through the Strait of Hormuz have contributed to uncertainty surrounding the future path of oil prices.
The Bank of Canada said it has so far seen limited evidence that higher energy costs are spreading more broadly through the economy. However, policymakers warned that the longer elevated oil prices and refined-product margins persist, the greater the risk that these pressures could eventually feed into the prices of other goods and services.
Trade Tensions Add to Economic Uncertainty
Canada’s economic outlook is also being shaped by renewed tensions with the United States.
Following a breakdown in trade talks, new US tariffs on Canadian exports and Canadian counter-measures have been announced. The Bank of Canada warned that these measures could increase costs for Canadian businesses and, over time, contribute to higher consumer prices.
At the same time, tariffs create additional uncertainty for economic growth. The central bank noted that the latest trade measures could make it more difficult to assess whether the current economic rebound can be sustained.
Governor Macklem emphasized that monetary policy cannot directly offset the impact of tariffs or influence global energy prices. Instead, the Bank’s role is to ensure that external shocks do not undermine price stability in Canada.
A More Cautious Outlook for Monetary Policy
The September decision reflects a delicate balance between a strengthening Canadian economy and an increasingly uncertain inflation outlook.
For now, the Bank believes that the economy and inflation are developing broadly as projected in July, which supports keeping interest rates steady. However, the combination of higher energy prices, geopolitical uncertainty and new trade barriers has increased the risks facing the inflation outlook.
The Governing Council stated that it will continue to assess the sustainability of the economic recovery and the evolution of inflation, while remaining prepared to adjust monetary policy if necessary. The Bank reiterated its commitment to keeping inflation close to its 2 per cent target and maintaining confidence in Canada’s price stability.
The Bank of Canada’s next scheduled interest rate announcement will take place on October 28, 2026, when the central bank will also publish its next Monetary Policy Report.
Source: Financial Post, “Bank of Canada holds interest rates: Read the official statement“. The article is based on the Bank of Canada’s official monetary policy statement.
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Written for the Canadian Chamber of Commerce in Hungary News Section as part of our ongoing coverage of developments affecting Canadian trade, economy and international partnerships, September 2026