Bank of Canada Holds Rate at 2.25% as Tariff and Inflation Risks Rise

The Bank of Canada kept its key policy interest rate unchanged at 2.25% on Wednesday, September 2, as policymakers weighed signs of a strengthening Canadian economy against growing risks from inflation, high energy prices and renewed trade tensions with the United States. The Bank Rate was maintained at 2.5%, while the deposit rate remained at 2.20%.

The central bank said new U.S. tariffs and Canadian countermeasures announced following the breakdown of trade talks have increased uncertainty surrounding the economic outlook. Higher costs faced by businesses could eventually be passed on to consumers, adding to inflationary pressures.

Canada’s economy strengthened during the second quarter, with gross domestic product rising at an annualized rate of 3.3% following very weak growth at the start of the year. Consumer spending increased, housing activity showed signs of recovery, and both exports and business investment posted strong gains.

Labour market conditions have also improved, with the unemployment rate easing to 6.4% in July. However, the Bank said demand for workers remains subdued and the economy continues to operate with excess capacity.

Inflation remains another source of concern. Consumer price inflation has been hovering near 3%, largely because of persistently higher gasoline prices. Excluding gasoline, inflation stood at 2.2%, while the Bank’s preferred measures of core inflation remained close to its 2% target in July.

The Bank also pointed to the continuing conflict in the Middle East and limited progress in fully reopening the Strait of Hormuz as factors keeping oil and refined energy prices elevated. It warned that the longer those pressures persist, the greater the risk that higher energy costs will spread to other goods and services.

The Governing Council said the economy and inflation are evolving broadly in line with its July projections, but acknowledged that upside risks to inflation have increased while new tariffs have made the outlook for growth more uncertain. The Bank said it is prepared to adjust monetary policy if conditions change.

The Bank of Canada’s next scheduled interest rate decision will be announced on October 28, 2026, alongside a new Monetary Policy Report containing updated forecasts for economic growth and inflation.