The Bank of Canada is keeping its benchmark interest rate steady at 2.25 percent. This marks the seventh consecutive time the central bank has left its policy rate unchanged. While rates remain flat, Bank of Canada Governor Tiff Macklem warns that inflation risks are climbing. According to a recent report from CBC News, higher energy costs and incoming tariffs on US goods are the biggest threats to consumer prices.

New Tariffs and Global Conflicts Drive Up Costs

The trade war between Canada and the US is escalating. Last month, the US imposed 50 percent tariffs on roughly 28 billion dollars worth of Canadian products. Canada is now matching those levies with dollar for dollar tariffs on 27.6 billion dollars of US goods. Macklem notes these retaliatory tariffs will add costs for businesses. However, he points to the Middle East as the larger issue.

“The conflict has escalated again. Oil prices are back up,” Macklem told reporters. “The longer that drags on, the bigger the risk that it starts to spill over to the prices of other goods and services.”

US benchmark oil prices have jumped about 13 percent since July. Slower tanker traffic through the Strait of Hormuz restricts oil from reaching global markets. This directly impacts what you pay at the gas pump in Saint John.

Will Interest Rates Go Up?

Canada’s inflation rate hit three percent in July. This sits above the central bank target of two percent. Macklem calls this rate too high and attributes the spike directly to gasoline and oil prices.

Economists are split on what happens next. Derek Holt, vice president of capital markets economics at Scotiabank, predicts the Bank of Canada will introduce 75 basis points worth of rate hikes starting in the fourth quarter of 2026. He believes the central bank has opened the door to tighten rates as soon as their next meeting in October.

On the other hand, CIBC chief economist Avery Shenfeld expects no rate changes in 2026. He argues the uncertainty surrounding the trade war clouds the economic picture too much to make definitive moves.

Bond Yields Hit Highs Over Two Years

The bond market is also reacting to global pressures. The benchmark 10 year Government of Canada bond yield recently climbed to 3.80 percent. This is its highest level in over two years. While the Bank of Canada controls short term borrowing costs, the bond market sets long term rates. Rising bond yields lead to higher fixed mortgage rates for homebuyers.

Bank of Canada Senior Deputy Governor Carolyn Rogers says investors are currently repricing risk, but she does not see signs of market instability.

Frequently Asked Questions

What is the current Bank of Canada interest rate?

The Bank of Canada benchmark interest rate is currently 2.25 percent.

Why is inflation rising in Canada?

Inflation is rising primarily due to higher global oil prices caused by conflict in the Middle East and new tariffs on US goods.

How do US tariffs affect Canadian consumers?

Canada is applying retaliatory tariffs on US goods. This increases the cost of importing these items, and businesses pass those extra costs down to consumers.

When is the next Bank of Canada rate announcement?

The central bank will make its next interest rate announcement on October 28, 2026.