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Essentials of Monetary Policy

The Bank of Canada Stays on the Sidelines as the Outlook Becomes More Uncertain

September 2, 2026
Randall Bartlett
Deputy Chief Economist

According to the Bank of Canada (BoC)

  • As expected, the Bank of Canada left its policy rate unchanged in September at 2.25%. The overnight rate has remained at the lower bound of the Bank’s estimated range for the neutral rate since October 2025.
  • In his Press Conference Opening Statement External link., Bank of Canada Governor Tiff Macklem outlined three key messages related to the interest rate decision.
  • First, economic growth in Canada increased after stalling over the past year. As expected, the economy strengthened in Q2 External link., with GDP rising 3.3% q/q annualized following very weak growth in Q1 (graph 1). The rebound was relatively broad-based, putting the economy on firmer footing, although renewed US tariffs have raised questions about the recovery’s durability. However, the Bank does not expect a large direct impact on overall activity from these actions, as the affected products account for about 5% of exports to the US and federal support programs should also help cushion some of the impact.
  • Second, the ongoing conflict in the Middle East is keeping energy prices higher for longer, increasing upside risks to the inflation outlook. The Bank is closely monitoring the direct impact of higher oil prices and its spillover effects to other prices. There is little evidence of that so far. However, with the conflict ongoing and shipments through the Strait of Hormuz still constrained, upside risks to the Bank’s inflation forecast have increased. In addition, new US tariffs and proposed Canadian counter tariffs could raise costs for some businesses and gradually feed into consumer prices.
  • Third, against a backdrop of rising inflation risks and uncertain growth, the Bank remains committed to keeping inflation close to the 2% target over time. At the same time, it recognizes that monetary policy cannot offset tariffs or influence global energy prices.

Implications

Uncertainty was the name of the game in today’s interest rate announcement. While the Bank kept its policy rate unchanged, the two-sided risks to the inflation outlook that characterized the July meeting External link. have only widened, making the central bank’s job even more difficult. The Bank rightly highlighted the increased upside risk to inflation, as elevated energy prices and proposed counter tariffs on Canadian imports from the US could put upward pressure on non-energy prices. At the same time, renewed trade tensions with the US External link. will likely weigh on growth, and in our view more than the Bank appears to anticipate (graph 2). As such, staying on the sidelines was the right decision, as more data is needed to assess the effects of current and potential shocks to the Canadian economy. In this context, we continue to expect the policy rate to remain at 2.25% through the rest of the year, before rising 50 basis points in the first half of 2027.

2026 Schedule of Central Bank Meetings

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