Bank of Canada September Hold: Broadening Recovery on Track But Tariff and Strait of Hormuz Risks Remain Elevated

According to the Bank of Canada's September 2, 2026 monetary policy decision, the policy rate was held unchanged at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. The Governing Council's decision was grounded in the assessment that recent data reaffirm its view of a broadening recovery in Canada's economy — consistent with the July Monetary Policy Report projection that had anticipated H2 2026 growth accelerating from the near-zero H1 pace.

The Bank's September statement noted that overall recent data reaffirm the Governing Council's view of a broadening recovery. The labour market data, consumer spending indicators, and business investment signals through August all confirmed that the H2 2026 recovery that the July MPR had projected was unfolding broadly as expected. The economy that had been effectively stagnant from Q1 2025 through Q1 2026 is now generating positive momentum across a wider range of sectors and provinces than the first half of the year.

However, the Bank's September statement also flagged two key risk considerations that are preventing Governing Council from moving toward its next rate cut. First, new US tariffs and threats of further action pose risks to the sustainability of the recovery — the tariff uncertainty that had suppressed Canadian trade and investment through 2026 shows no signs of resolution, and any escalation could reverse the H2 recovery momentum. Second, with the Middle East conflict still ongoing and little progress reopening the Strait of Hormuz, upside risks to the Bank's inflation forecast have increased. Inflation excluding gasoline stood at 2.2% in July, with core inflation measures remaining close to 2% — suggesting the inflation picture is manageable. But the energy price upside risk from the Middle East situation remains a constraint on the Bank's ability to ease further.

The Bank's September communication confirmed that while the economic recovery is proceeding broadly as the July MPR forecast, the balance of risks has shifted somewhat — with tariff risks to growth on one side and energy price risks to inflation on the other. Governing Council will assess the sustainability of the economic rebound and the outlook for inflation before deciding on the next policy move, and is prepared to adjust monetary policy as needed in either direction.

For international businesses with Canadian operations, the Bank of Canada's September hold at 2.25% confirms that Canada's monetary policy environment will remain broadly stable through Q4 2026. The policy rate, while still above its neutral level, is significantly lower than Norges Bank's 4.5% or some other major central banks, providing a relatively supportive borrowing cost environment for Canadian business investment and consumer spending. The H2 recovery is real and broadening, and Q4 2026 will be a more active commercial environment in Canada than any of the preceding three quarters.