- Lead. The Bank of Canada held its key interest rate at 2.25% on September 2 for the seventh consecutive meeting, even as the economy posted its strongest quarterly growth in two years.
- Fact. New US tariffs covering about 5% of Canadian exports are already in force, and bond markets are now pricing near-certainty of a rate hike by December 2026.
- Stake. Governor Tiff Macklem explicitly warned that further hikes remain on the table if inflation does not continue to ease — a signal that the current hold is conditional, not a pivot.
Canada’s central bank voted unanimously to keep its benchmark overnight rate at 2.25% at its September 2 meeting, extending a pause that has now run for seven consecutive decisions, according to reporting by The Globe and Mail. The decision came against a backdrop of solid headline growth but deepening trade uncertainty that the bank said could undercut the recovery’s momentum.
The Decision and Its Language
The Bank’s governing council pointed to Q2 GDP growth of 3.3% annualised and an unemployment rate that fell to a two-year low of 6.4% as evidence of a broadening recovery. But the statement was deliberately cautious. Governor Tiff Macklem, speaking after the decision, said the bank would not hesitate to move if conditions required it: “If we felt that inflation was going to remain too high, yes, we are prepared to raise interest rates. And if it takes more than one increase, we’re prepared to do that.” Headline inflation sits at exactly 3.0% — the upper bound of the bank’s control range — driven primarily by elevated gasoline prices. Excluding energy, inflation was running at 2.2%, with core measures near the 2% target.
The Tariff Shadow
Washington’s tariff campaign, which has lurched between pauses and escalations since August, now covers roughly 5% of Canadian exports to the United States. The bank said those measures would not have “a large direct impact on overall economic activity” at their current scope, but acknowledged that targeted sectors — steel, aluminium and certain agriculture products — face significant disruption. The risk the bank is managing is a stagflationary squeeze: tariffs raise import costs and consumer prices just as export revenue contracts, potentially requiring higher rates to control inflation even as growth softens.
What Markets Are Pricing
Bond yields rose sharply after the September decision, with markets moving to price approximately 100% odds of at least one rate hike before year-end. The central bank’s language, notably the explicit warning that multiple hikes remain possible, confirmed that the neutral-rate debate is not resolved. The Canadian dollar held close to 1.3890 against the US dollar — near the middle of its recent trading band — suggesting investors are not treating the hold as an all-clear. The next Bank of Canada decision is scheduled for October; inflation and employment data due in September will shape whether the conditional hold becomes a hike.