Canada Housing Market

Canadians who have been waiting for interest rates to fall could be in for a surprise, because the Bank of Canada is now warning that rates may need to go up again.

The Bank of Canada held its policy interest rate at 2.25% on September 2, keeping it unchanged for another meeting.

But what Governor Tiff Macklem said afterward is getting a lot of attention.

Macklem confirmed that the Bank is prepared to raise interest rates if inflation remains too high, and said more than one increase could be necessary.

The Bank Of Canada Is Open To Multiple Rate Hikes

During the September 2 press conference, Macklem was asked whether the Bank would be willing to raise rates to control inflation.

His answer was clear.

He said that if inflation looks likely to remain too high, the Bank is prepared to increase interest rates, including more than once if necessary.

That represents a noticeable shift after years in which much of the conversation around Canadian interest rates has focused on when borrowing costs would come down.

The Bank’s policy rate has been sitting at 2.25% since October 2025.

Why The Bank Is Worried About Inflation Again

Canada’s annual inflation rate has recently been hovering around 3%, above the Bank of Canada’s 2% target.

A major factor has been higher gasoline prices caused by elevated global oil prices.

The Bank said inflation excluding gasoline was 2.2% in July, while its preferred measures of core inflation remained close to 2%.

So far, officials haven’t seen much evidence that higher energy costs are spreading throughout the rest of the economy.

But they’re worried that could change if oil and gasoline prices remain high for longer.

The Bank warned that prolonged energy price increases could eventually show up in the cost of other goods and services, creating more persistent inflation.

New U.S. tariffs and Canadian counter-tariffs could also increase costs for some businesses and eventually consumers.

The Bank’s Language Has Changed

There was another important change in the September announcement.

Reuters noted that the Bank dropped wording used previously that suggested the 2.25% policy rate was at the right level to keep inflation near target while supporting the economy.

Instead, the Bank said the risks of higher inflation have increased and that it is prepared to adjust monetary policy as needed.

Macklem also said policymakers will reassess where interest rates need to be at their next meeting.

Canada’s Economy Has Also Been Stronger Than Expected

Another reason the Bank has more room to focus on inflation is that Canada’s economy has recently shown signs of improvement.

Real GDP increased at an annualized rate of 3.3% in the second quarter of 2026, following very weak growth during the first quarter.

Consumer spending increased, housing activity showed some recovery and exports and business investment also strengthened.

The unemployment rate edged down to 6.4% in July, although the Bank said there is still excess supply in the economy and demand for workers remains subdued.

That leaves the Bank balancing two competing risks: keeping inflation under control while avoiding unnecessary damage to an economy that is still dealing with trade uncertainty.

What This Could Mean For Ontario Home Buyers

A return to rate hikes would be an important development for Ontario’s housing market.

The Bank of Canada’s policy rate has a direct influence on variable mortgage rates and other forms of floating-rate borrowing.

Fixed mortgage rates aren’t set directly by the Bank of Canada, but they are influenced heavily by bond yields and financial market expectations about future interest rates.

Higher borrowing costs could reduce how much some buyers can qualify for and put additional pressure on housing affordability.

It could also affect existing homeowners with variable-rate mortgages or borrowers renewing their mortgage in the coming years.

For now, however, no rate hike has actually been announced.

The Bank kept rates unchanged at 2.25% on September 2 and has made it clear that future decisions will depend on what happens with inflation and the economy.

When Is The Next Bank Of Canada Interest Rate Decision?

The next Bank of Canada interest rate announcement is scheduled for October 28, 2026.

The Bank will also release its next Monetary Policy Report that day, giving Canadians an updated look at its forecasts for inflation and economic growth.

After years of Canadians watching for the next interest rate cut, the conversation may now be shifting in the opposite direction.

Whether rate hikes actually return will largely depend on whether today’s higher inflation proves temporary or starts becoming more persistent.

References

Bank of Canada — September 2, 2026 Interest Rate Decision
Bank of Canada maintains the policy rate at 2.25%

Bank of Canada — Tiff Macklem’s September 2 Opening Statement
Monetary Policy Decision Press Conference Opening Statement

Bank of Canada — Policy Interest Rate History & 2026 Schedule
Bank of Canada Policy Interest Rate

Reuters — September 2, 2026
Bank of Canada holds key rate, says multiple hikes might be needed