Bank of Canada expected to hold interest rates amid trade tensions

The Bank of Canada is widely expected to maintain its key overnight interest rate at 2.25% during its upcoming September 2 policy meeting. Economists surveyed by Reuters predict that borrowing costs will remain at this level through 2026 and most of 2027, with a potential increase to 2.50% forecasted for the fourth quarter of 2027.

Policymakers are currently navigating a complex economic landscape characterized by rising inflation and intensifying trade tensions with the United States. Following a breakdown in trade negotiations on August 22, Prime Minister Mark Carney announced retaliatory measures and support programs for domestic businesses affected by the dispute.

Financial experts note that the central bank is in a difficult position, balancing inflationary pressures—with the Consumer Price Index rising to 3% in July—against the risk of slowed economic growth caused by the trade war. The volatility in the trade relationship is already impacting bond markets, which in turn influences the direction of fixed mortgage rates.