Bank of Canada holds interest rate at 2.25%, warns trade war could sabotage recovery

At 9:45 a.m. ET, the Bank shared that it will maintaining its overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

The key policy interest rate has remained unchanged since October 2025, when it came down from 2.50%.

In its commentary, the Bank shared that the “continuing conflict” in the Middle East is keeping energy prices high.

“As well, new U.S tariffs and Canadian counter-measures have been announced following the breakdown of trade talks between Canada and the United States. Both situations remain fluid,” it stated.

The Bank further noted that U.S. economic growth remains solid due to consumer spending and AI investments, while China’s economy slowed down. Despite geopolitical headwinds. the global economy has remained resilient. Inflation in most countries remains high due to high oil and energy product prices.

In Canada, consumption showed solid gains and housing activity has shown some rebound. “Exports and business investment were up sharply. Labour market conditions have improved in recent months, with the unemployment rate edging down to 6.4% in July,” the Bank noted. “Still, demand for labour remains subdued and indicators point to continued excess supply in the economy.

As estimated in July by the Bank of Canada, and per recent data, economic recovery for the country remains an expectation, but uncertainty from U.S. tariffs and other threats from the south could sabotage it.

Can we expect Bank of Canada to lower the key interest rate soon?

“The Bank of Canada’s decision to hold its overnight rate at 2.25% was widely expected and reflects the Bank’s difficult position in balancing between tariff-driven inflationary pressures and the risk that a prolonged trade war will slow economic growth,” Jamie David, VP of Mortgages at Ratehub, told MoneySense.

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“With the latest inflation data showing headline Consumer Price Index (CPI) at 3.0% and energy prices once again rising amid renewed conflict between the U.S. and Iran, the Bank has little room to move aggressively in either direction,” she said, adding that future rate cuts still remain on the table.

“The Bank has acknowledged that tariffs and higher energy and gasoline prices pose risks to inflation. However, if the trade war begins to weaken consumer spending, business investment and employment, the Bank may eventually need to cut to support growth amid economic pressure.” 

What happens to fixed mortgage rates?

Fixed mortgage rates could move in either direction in the coming weeks, according to David. Much of it depends on how the trade war and conflict in Iran develop.

“A prolonged U.S.-Canada trade conflict that weakens economic growth could push bond yields and fixed rates lower, while higher oil and energy prices and tariff-driven inflation could push them higher. Borrowers should expect continued volatility in fixed rates,” she stated.

The expert shared that there are currently still some discounted options available below the 4% mark, including a two-year fixed mortgage rate of 3.89% and three-year fixed rate of 3.94%. The lowest five-year fixed mortgage rate is currently sitting at 4.09%.

“For Canadians shopping for a home or approaching a mortgage renewal, securing a rate hold is a strategic move amid the current market volatility. A rate hold can lock in today’s rates for up to 120 days, shielding borrowers from potential increases,” she advised.

What happens to variable mortgage rates?

With a rate hold in place, variable mortgage rates are likely to remain unchanged in the near term. Right now, the lowest five-year variable mortgage rate is 3.35%.

The outlook for future cuts is becoming more dependent on how the trade war unfolds. David said that if tariffs begin to weigh heavily on economic growth, employment, and consumer demand, the Bank could have more room to cut rates to support the economy..

“As tariffs begin to weigh more heavily on Canadian exports, business investment, employment and overall economic growth, the Bank may need to lower rates to support the economy even with inflation running warm,” stated David.

Will the housing market recover?

“Given the current turmoil over trade talks with the U.S, it is important that our institutions not overreact to news headlines or empty provocations,” Canadian Mortgage Brokers Association (CMBA) Ontario shared in a press statement sent to MoneySense on Wednesday morning. “It is a welcoming sign for Canada’s housing market that the Bank of Canada maintains its confidence in the continuing health and stability of the Canadian economy.”

“It’s the kind of signal we were all looking for,” said Michelle Campbell, the Association’s president. “The housing market needs steady, confident leadership. People are looking to our institutions to show that this is a good time to invest, and holding rates is a strong indicator of that. Safety and security are the key priorities for investors right now. Given all the turmoil that is happening with the trade talks and international events, this rate hold was a prudent and necessary step.”

David said that with heightened economic uncertainty around employment, household incomes and mortgage rates may cause both buyers and sellers to take a “wait-and-see approach.” 

“The housing market needs confidence as much as it needs lower borrowing costs. If the trade war persists, weakening economic sentiment could weigh on sales activity even if mortgage rates remain relatively stable. For buyers who are financially ready to move, waiting for significantly lower rates or home prices may not necessarily be the best strategy, as affordability is unlikely to improve meaningfully in the months ahead,” she added.

Bank of Canada interest rate announcement dates in 2026

We are already past six Bank of Canada interest rate announcements for the year. Keep an eye on the Bank’s website. Updates always drop at 9:45 a.m. ET.

Two more updates remain on the following dates:

– October 28, 2026
– December 9, 2026

Related articles:

• Bank of Canada interest rate announcement: What to expect on September 2
• The MoneySense guide to inflation (2026)
• Find the best mortgage rates in Canada
• Where to buy real estate in Canada in 2026: National overview

About MoneySense Editors

MoneySense editors and journalists work closely with leading personal finance experts in Canada. Since 1999, our award-winning magazine has helped Canadians navigate money matters.

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