What the Bank did
The Bank of Canada held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
That means no change for now — but the tone shifted. The Bank's watching two big wild cards: ongoing conflict in the Middle East (which is keeping energy prices high) and fresh US tariffs plus Canadian counter-measures after trade talks broke down. Both situations are still moving.
What's happening around the world
In the United States, growth is solid — consumer spending and AI-related investment are doing the heavy lifting. Europe surprised with stronger-than-expected second-quarter growth, while China slowed. Overall, the global economy has held up against geopolitical headwinds, tracking close to the Bank's July Monetary Policy Report (MPR) projection.
Inflation in most countries remains high, thanks to still-elevated oil prices and pricey refined energy products. Financial conditions have tightened since July: long-term bond yields climbed globally (including here), and the Canadian dollar edged up slightly as the US dollar weakened.
What's happening in Canada
Canada's economy bounced back in the second quarter — GDP rose 3.3% after a very weak first quarter. Some of that strength was temporary, but the pickup was broad-based. Consumer spending was solid, housing showed signs of life after several soft quarters, and exports and business investment jumped.
The labour market improved: the unemployment rate ticked down to 6.4% in July. But demand for labour is still subdued, and the economy still has excess supply — there's more capacity than demand.
Recent data confirm the Bank's view that Canada's recovery is broadening. But uncertainty is high, and new US tariffs (plus threats of more) pose real risks to whether that recovery can keep going.
Inflation and the energy-price squeeze
CPI inflation has hovered around 3% lately, mostly because gasoline prices are persistently high. So far, higher energy costs haven't spread much to other parts of inflation: excluding gas, inflation was 2.2% in July, and the Bank's measures of core inflation stayed close to 2%.
But the longer the Middle East conflict drags on — and the Strait of Hormuz stays partially closed — the higher the risk that oil prices and refinery margins feed into the prices of other goods and services. New US tariffs and Canadian counter-tariffs will also raise costs for some businesses, and could eventually show up in what you pay at the checkout.
Why the Bank held steady (and what it's watching)
The economy and inflation are evolving roughly as the Bank forecast in July, so the Governing Council agreed to leave the policy rate unchanged. But upside risks to inflation have increased, and new tariffs make the growth outlook more uncertain.
The Bank will keep assessing whether the economic rebound can last and where inflation is headed. It's prepared to adjust monetary policy as needed, and remains committed to keeping Canadians' confidence in price stability through this period of global upheaval.
What this means for your mortgage
For now, your variable rate won't change — but the Bank's tone suggests it's on higher alert for inflation surprises. If energy prices keep climbing or tariff costs seep into the broader economy, the next move could be up rather than down.
If you're renewing soon or thinking about your rate strategy, it's worth mapping out what happens in a few different scenarios. We can walk you through the numbers and help you figure out what makes sense for your situation — no guesswork, just a plan that fits. Reach out anytime: [matt@hellomortgage.ca](mailto:matt@hellomortgage.ca).
Next announcement
The next scheduled date for announcing the overnight rate target is October 28, 2026. The Bank's next Monetary Policy Report will be released at the same time.
