BANK OF CANADA HOLDS RATE AT 2.25% — SEPTEMBER 2026

Canada Wanted a Rate Cut. The Economy Gave the Bank of Canada Reasons to Wait.

On September 2, 2026, the Bank of Canada made its latest interest-rate decision. No cut. No increase. The overnight rate stays at 2.25%.

For homeowners waiting for cheaper variable-rate mortgages, that probably wasn't the announcement they were hoping to hear.

But I actually think this rate decision tells us something more important about the Canadian economy.

The Bank of Canada is caught between two very different problems.

On one side, parts of Canada's economy are still struggling. Businesses remain cautious, the labour market isn't exceptionally strong, and trade uncertainty with the United States is creating another headache.

On the other side, inflation hasn't completely behaved itself.

Energy prices are elevated. Tariffs could increase costs. Canada's economy just posted a surprisingly strong quarter. So the Bank looked at everything and essentially said: “We're not touching anything yet.”

And when you look deeper into the numbers, that decision starts making much more sense. FIRST: WHAT EXACTLY DID THE BANK OF CANADA DO? The Bank of Canada kept its target overnight rate at: 2.25% The Bank Rate remains: 2.50% And the deposit rate remains: 2.20% The policy rate has now been unchanged since October 2025.

That matters particularly for borrowers with variable-rate mortgages and lines of credit because prime rates are closely connected to Bank of Canada policy decisions.

But before we start asking when the next cut is coming, we need to understand why we didn't get one this time. REASON #1: CANADA'S ECONOMY SUDDENLY LOOKED STRONGER

This is probably the biggest reason the Bank didn't feel pressured to cut. Canada's economy had been weak. Then Q2 arrived.

Real GDP increased approximately 0.8% during the second quarter, equivalent to roughly 3.3% annualized growth.

That's a significant rebound after an extremely weak first quarter. And the improvement wasn't coming from only one place. Consumer spending increased. Housing activity showed some recovery. Exports jumped. Business investment strengthened.

Statistics Canada reported exports rising 3.6% during Q2, their strongest quarterly increase in more than three years. So imagine you're the Bank of Canada.

You've already brought the overnight rate down substantially from the highs we experienced during the inflation fight.

Then the economy produces approximately 3.3% annualized growth. Are you really in a hurry to cut again? Probably not.

The economy basically walked into the doctor's office saying: “I still don't feel great.” Then ran up the stairs.

The doctor is going to ask a few more questions before prescribing anything. REASON #2: INFLATION IS STILL AROUND 3% This is the bigger problem. The Bank of Canada's long-term inflation target is 2%. Recent headline CPI inflation has been hovering around 3%. Now, there is an important detail.

A significant part of that inflation is coming from gasoline and energy prices.

When gasoline is removed, inflation was approximately 2.2% in July, while the Bank's preferred measures of core inflation remained close to 2%. That actually sounds fairly comfortable. So why not cut?

Because the Bank isn't only worried about where inflation is today. It's worried about where inflation could go next. OIL HAS BECOME THE WILD CARD

The continuing conflict in the Middle East has kept global energy prices elevated.

Oil prices matter tremendously to Canada and the global economy. Higher energy costs eventually touch almost everything. Trucking costs more. Flying costs more. Manufacturing can cost more. Food distribution costs more. Businesses pay more to move goods. And eventually some of those costs can reach consumers.

So far, the Bank says there hasn't been much evidence that higher gasoline and energy prices are spreading broadly through the Canadian economy. That's good.

But the longer energy prices remain elevated, the greater the risk that they start appearing elsewhere. That's what the Bank is watching. And this is where monetary policy gets frustrating.

The Bank of Canada cannot end a conflict in the Middle East. It cannot reopen shipping routes. It cannot produce more oil.

Changing the overnight rate isn't going to convince an oil tanker to move faster.

What the Bank CAN do is make sure temporary energy inflation doesn't turn into persistent Canadian inflation. That's why they're being careful.

REASON #3: THE CANADA–U.S. TRADE PROBLEM JUST GOT MORE COMPLICATED Now add another ingredient: Tariffs.

The United States has announced new tariffs on Canadian exports following the breakdown of trade talks. Canada has responded with counter-tariffs. This creates a very awkward problem for the Bank of Canada. Tariffs can hurt economic growth. But tariffs can also increase inflation.

That's basically a central bank's least favourite combination.

If tariffs hurt Canadian businesses, employment and investment, you could argue: Cut interest rates.

But if tariffs increase the cost of imported goods and businesses pass those costs onto consumers, you could argue: Don't cut interest rates. See the problem? One economic shock is telling the Bank to press the gas. The other is telling it to hit the brakes. So for September? They kept their foot where it was. CANADA'S LABOUR MARKET ISN'T EXACTLY BOOMING EITHER This is where the picture gets even more interesting.

At the time of the September 2 decision, the Bank was looking at July unemployment of 6.4% and noted that there was still excess supply in the economy.

And the newest August employment data, released after the rate decision, reinforces why this economy is difficult to read.

Employment declined by approximately 42,000 jobs in August, while unemployment remained at 6.4%. So Canada isn't experiencing some enormous employment boom.

There are still weaknesses underneath the headline GDP number. That's why I wouldn't read the September rate hold as: “The Canadian economy is incredibly strong.” That's not what the Bank is saying. It's more like:

“The economy improved enough that we don't need to rush into another cut while inflation risks are increasing.” That's a very different message. SO WHY DIDN'T THEY INCREASE RATES? Good question.

If headline inflation is around 3% and energy prices are creating inflation risk, why not increase the overnight rate? Because the Bank has another problem. There is still excess capacity in Canada's economy. The labour market isn't overheating. Underlying inflation excluding gasoline is around 2.2%. Core inflation is close to target. And trade uncertainty could weaken future economic growth.

Raising rates aggressively into that environment could unnecessarily hurt households and businesses. So increasing wasn't particularly attractive either. That's why 2.25% became the middle ground. Don't stimulate more. Don't tighten more. Watch. Wait. Collect more data. THIS IS ACTUALLY WHAT A RATE HOLD MEANS People sometimes interpret a hold as: “Nothing happened.” I disagree. A hold is a decision. The Bank is essentially saying:

“Based on what we know today, 2.25% is approximately where we want monetary policy while we wait to see which risk becomes more important.” Will inflation win? Will economic weakness return? Will tariffs damage growth? Will energy prices come down? Will employment weaken? Will consumer spending remain resilient? Those answers will determine what comes next. WHAT DOES THIS MEAN FOR VARIABLE-RATE MORTGAGES?

For variable-rate borrowers, September 2 brought no immediate Bank of Canada relief.

The overnight rate stayed at 2.25%, so there was no policy-driven reduction to prime from this announcement.

If you're currently variable, that doesn't automatically mean you should switch to fixed.

And if you're currently fixed, it doesn't automatically mean variable is better. Your decision depends on: Your mortgage rate. Remaining term. Penalty. Plans for the property. Risk tolerance. And what flexibility you need.

Please don't redesign a five-year mortgage strategy because of one Wednesday morning press release. WHAT ABOUT FIXED MORTGAGE RATES? This is one of the biggest misunderstandings in mortgages.

The Bank of Canada does not directly set five-year fixed mortgage rates.

Fixed mortgage pricing is influenced heavily by Government of Canada bond yields and broader funding markets. And here's another interesting part of the September story:

Long-term bond yields have risen globally, including in Canada.

Financial conditions have actually tightened somewhat since July.

So it is completely possible for the Bank of Canada to hold its overnight rate while fixed mortgage pricing moves in another direction. That's why: “Bank of Canada didn't increase rates” doesn't automatically mean: “Fixed mortgage rates can't increase.” Different engine. WHAT DOES THIS MEAN FOR THE CANADIAN HOUSING MARKET? Probably stability more than excitement.

A September cut could have improved affordability slightly for variable borrowers and potentially encouraged some buyers waiting on the sidelines.

Instead, the hold keeps borrowing conditions relatively steady. But housing isn't driven by the Bank of Canada alone. Prices. Inventory. Population growth. Employment. Household income. Mortgage qualification. Bond yields. Local housing supply. All of these matter.

And this is especially important in a country as large as Canada. Calgary is not Toronto. Toronto is not Vancouver. Vancouver is not Edmonton.

Even within Calgary, a detached house and an apartment condo can be operating in completely different markets.

So I wouldn't make a real-estate decision based solely on whether the Bank cut 0.25%. WHAT DOES THIS MEAN FOR CALGARY?

Calgary is particularly interesting because Alberta can experience both sides of higher energy prices.

Higher oil prices can hurt consumers through gasoline and broader inflation.

But Alberta's economy can also benefit from stronger energy-sector revenues and activity.

That creates a very different economic environment than some other Canadian markets. For Calgary buyers, I would continue watching: Employment. Migration. Housing inventory. Property type. Mortgage rates. And individual neighbourhood conditions. Not simply the overnight rate. SHOULD YOU WAIT FOR THE NEXT RATE CUT BEFORE BUYING? This question comes up constantly. “Harpreet, should I wait until rates drop?” Maybe. But let's do the actual math first. Suppose you're waiting for a 0.25% rate reduction. Fine.

What happens if the property you want becomes more expensive?

What if bond yields move up and fixed rates don't follow the overnight rate lower? What if competition increases? What if nothing happens for six months?

Or what if prices fall and waiting turns out to be brilliant? Nobody knows with certainty.

That's why I don't like building a real-estate strategy around predicting one Bank of Canada meeting. Instead, I ask: Can you afford the property today? Is the payment comfortable? Do you have the down payment? Is your income stable? Is the property priced properly? How long are you planning to own it?

If all of those answers make sense, then we have something worth discussing. WHAT COULD CAUSE THE NEXT RATE CUT? This is what I would watch.

If economic growth weakens again, unemployment rises, consumer spending slows and inflation continues moving toward 2%, the argument for another cut becomes stronger. Especially if energy prices ease. But there is another side. WHAT COULD KEEP RATES AT 2.25% LONGER? Persistent energy inflation. Tariff-related price increases. Strong consumer spending. Continued economic growth.

Or evidence that inflation is spreading beyond gasoline into broader goods and services.

If those pressures remain, the Bank may have very little reason to rush. AND COULD RATES ACTUALLY GO UP AGAIN? Never say never.

Right now, the Bank isn't signalling that a rate increase is automatically coming.

But if inflation becomes persistent again—particularly if higher energy costs and tariffs spread broadly through prices—the Bank has made it clear that it is prepared to adjust monetary policy as needed. That's central-bank language for: “We're watching everything. Don't get too comfortable.” THE NEXT IMPORTANT DATE: OCTOBER 28, 2026

The next Bank of Canada interest-rate announcement is scheduled for October 28, 2026.

That meeting will be particularly important because the Bank will also release its next Monetary Policy Report. By then we'll have more information on: Inflation. Employment. Consumer spending. Trade. Energy prices. Housing. Business activity. And whether Canada's Q2 rebound actually had legs.

That will give us a much better picture of whether 2.25% remains appropriate. MY VIEW OF THE SEPTEMBER RATE HOLD

I think the Bank of Canada did exactly what the current data allowed it to do: Wait.

Canada's economy isn't weak enough to make another cut obvious.

Inflation isn't calm enough to make another cut comfortable. And the economy isn't hot enough to justify an increase. So we're sitting at 2.25%.

For borrowers, this is a good reminder that your mortgage strategy shouldn't depend on correctly predicting every Bank of Canada announcement. You don't control oil prices. You don't control tariffs. You don't control inflation.

And unless there's something you haven't told me, you probably don't control the Bank of Canada either. What we CAN control is: How much you borrow. How much you put down. Which mortgage structure you choose. How much flexibility you keep. What property you buy. And whether the payment actually fits your life. That's where I prefer spending our energy. DON'T BUILD YOUR MORTGAGE AROUND A RATE PREDICTION. BUILD IT AROUND A PLAN. If rates fall later, beautiful. We'll look at what opportunities that creates.

If they stay where they are, your mortgage should still work. And if the economy surprises everyone again? Well...

That's why we built the strategy before we tried predicting the future. IMPORTANT INFORMATION

The Bank of Canada held its target for the overnight rate at 2.25% on September 2, 2026. Economic and inflation figures discussed in this article are based on information available around the decision, with subsequent August 2026 employment data identified separately where relevant.

This article is for general educational purposes only and is not financial, mortgage, investment, legal or tax advice. Mortgage rates, qualification requirements and suitable mortgage strategies vary by borrower, lender, property and market conditions.