Bank of Canada Market Update on September 2nd

The Bank of Canada announced this morning that it is holding its overnight rate at 2.25%, marking the seventh consecutive rate announcement with no change.

As a result, we expect bank Prime Rates to remain unchanged for now, with most lenders' Prime currently at 4.45%.

While there was no rate change today, the messaging from the Bank of Canada was noticeably different, and that is worth paying attention to.

🏦 What changed?

For much of the past year, the conversation has been around whether we could see further rate cuts. After today's announcement, that outlook has become less certain.

The Bank is now highlighting increased upside risks to inflation, particularly from persistently high energy prices and the potential impact of new tariffs. While this does not mean a rate increase is necessarily coming, it does mean borrowers shouldn't assume that further rate cuts are around the corner.

Some of the key points from today's announcement:

• Canada's economy has picked up after several weaker quarters, with some rebound in housing activity.
• Headline inflation has been hovering around 3%, largely due to higher gasoline prices.
• When gasoline is removed, inflation was 2.2% in July, while the Bank's preferred core inflation measures remain close to 2%.
• Higher energy prices have not yet significantly spread into the cost of other goods and services.
• The unemployment rate edged down to 6.4% in July, although demand for labour remains subdued and there is still excess supply in the economy.
• Higher energy prices, tariffs and ongoing global uncertainty remain potential risks to inflation.
• Longer-term bond yields have moved higher, which is important for fixed mortgage rates.

The key statement from the Bank today was: "Upside risks to the Bank's inflation forecast have increased."

In simple terms, the Bank is becoming more concerned about inflation moving higher again. While that does not mean a rate increase is guaranteed, the outlook has shifted, and the Bank has made it clear that it is prepared to adjust monetary policy as needed.

💡 What does this mean for your mortgage?

If you have a variable or adjustable-rate mortgage, there is no change to your rate today.

However, if you've been holding a variable mortgage primarily because you're expecting additional rate cuts, today's announcement is a good reminder that further cuts aren't guaranteed.

For borrowers with an adjustable-rate mortgage, where your payment changes along with Prime, it's also worth considering how comfortable your budget would be if rates eventually increased.

That doesn't automatically mean you should lock into a fixed rate. There are still advantages to variable mortgages, including flexibility and generally lower penalties to break the mortgage. It's simply a good time to make sure the mortgage you have still fits your plans and your comfort level.

If you're considering a fixed rate: Remember that fixed mortgage rates are primarily influenced by the bond market, rather than directly by Bank of Canada rate decisions.

Bond yields have recently been moving higher, which can put upward pressure on fixed mortgage rates.

If you're buying, renewing or refinancing:

I wouldn't recommend trying to perfectly predict where rates go next. There are simply too many factors that can change the outlook.

Instead, I think the better approach right now is to look at your options based on your individual situation, including your budget, plans for the property, mortgage term, flexibility and tolerance for potential rate changes.

The Bank of Canada's next interest rate announcement is scheduled for October 28, 2026, and there will be plenty of economic data between now and then that could influence its decision.

You can read the Bank of Canada's full September 2 announcement here.

As always, if your mortgage is coming up for renewal, you're considering buying or refinancing, or you simply want to review whether your current mortgage strategy still makes sense, please feel free to reach out.

I'm always happy to take a look at the numbers and walk you through your options. Book a call today here!