Bank of Canada holds at 2.25% amid oil-price uncertainty and weak growth

Current BoC rate: 2.25% (last changed: October 2025)

The Bank of Canada (BoC) held its overnight rate at 2.25% on July 15, 2026, making it the sixth consecutive hold since October 2025.  

The Bank cited signs of renewed economic growth and expectation that inflation could gradually return to its 2% target as reasons for leaving rates unchanged. 

"Canada's economy is showing signs of improvement. Growth is picking up and inflation is projected to ease gradually from its recent spike. There are still important risks and uncertainties related to the war in the Middle East and US trade policy," Governor Tiff Macklem said in the BoC's opening statement. 

Why a hold decision isn't surprising

The BoC's decision to leave interest rates unchanged was widely expected, as recent economic data have given policymakers little reason to move rates in either direction.

While inflation rose to 3.2% in May from 2.8% in April, according to Statistics Canada, economists say the increase was driven largely by higher energy prices rather than widespread price pressures across the economy.

Colin Mang, an economics professor at McMaster University, says underlying inflation remains relatively subdued despite the recent headline increase. "Excluding food and energy, inflation was only 1.6% in May, well below the Bank's 2% target," he notes.

The economy has also shown signs of stabilizing after a weak start to the year.  

"The unemployment rate has also now fallen for two months in a row as the economy has added jobs, so there is no reason for BoC to change rates right now," Mang says.

The Bank has also been watching closely to see whether higher gasoline and fuel costs spill over into prices of other goods and services. Thus far, economists say there is little evidence of that happening.

Senior Economist at Canadian Center for Policy Alternative, David Macdonald, believes weak economic growth would normally strengthen the case for a rate cut, but policymakers have been reluctant to act while energy-driven inflation remains a concern.

"What they are concerned about is the high price of fuel bleeding into prices of other goods and services," Macdonald says. "Thankfully, we just haven't seen this so far in the inflation figures."

With underlying inflation relatively contained for now, economic growth showing signs of improvement, and little evidence that higher fuel costs are spilling into broader consumer prices, economists say the Bank remains comfortable keeping rates on hold. 

Read more: Bank of Canada holds at 2.25% again: High oil prices, weak growth impact path ahead

Why many Canadian households still feel squeezed

Interest rates have fallen considerably from their peak, providing relief for some borrowers. But economists caution that many Canadians are still feeling pressure from rising costs of living.

"I wouldn't say this is a low-interest rate environment," Macdonald says. "Certainly rates are lower than they were in 2022, but they're much higher than they were in 2019."

He believes the Bank's policy rate now sits within its estimated neutral range, meaning it is neither significantly stimulating nor slowing the economy. At the same time, wage growth has not been felt equally across income groups.

"Wage growth in Canada has been quite solid recently, coming in at an average annual rate of 3.3%, above inflation," Mang notes. "However, that growth is not evenly distributed."

According to Mang, middle and high-income workers have generally seen stronger wage gains, while low-income Canadians continue to struggle with rising everyday expenses.

"Those with low incomes and lower-middle incomes have seen much slower earnings growth," he says. "With food prices rising at 3.8%, for many Canadian families, their paycheques are not keeping up with reality."

While inflation remains a concern, both experts suggested that the biggest pressures facing many households are increasingly tied to essentials such as groceries, rent, and housing costs rather than broad-based inflation across the economy.

Households that rent their primary residence, should be much more concerned about rising costs of rent, Macdonald says.

What the decision means for mortgage holders

For homeowners with variable-rate mortgages or home equity lines of credit (HELOCs), BoC’s July decision means borrowing costs remain unchanged for now.

The outlook for fixed-rate borrowers is not entirely tied to the Bank's overnight rate. Fixed mortgage rates are driven primarily by Government of Canada bond yields, which have remained relatively elevated despite the broader rate-cutting cycle.

For Canadians renewing a mortgage in the next six to 12 months, economists expect a relatively stable environment.

"The Bank of Canada is likely to hold interest rates steady over the next six months," Mang says, expecting variable rates to remain the same as long as the overnight rate holds steady.

Mang says fixed mortgage rates could move modestly higher if financial markets begin anticipating rate increases in 2027.

"As we head into 2027 and get closer to the next rate increase, fixed-rate mortgage rates will start to climb slightly," he notes.

Not all economists agree on the direction of the Bank in the medium term, however. Macdonald considers persistent economic weakness could eventually strengthen the case for rate cuts, particularly if inflation remains contained outside a handful of energy-related categories.

"More importantly for the Canadian perspective is we're not seeing CPI segments increase more broadly outside of gasoline and airline tickets," he says.

For borrowers, the practical takeaway is that significant changes in mortgage costs appear unlikely in the near term. Experts agree that any borrowing rate move in either direction over the next several months will likely be gradual.

Read more: Mortgage expert alert: Will the Iran War and rising inflation offer a buying opportunity in 2026? 

How current interest rates are shaping Canada's housing market

Lower borrowing costs have helped improve affordability compared to last year, but economists say Canada's housing market continues to face deeper challenges.

Mang says the market is still adjusting after the housing boom that unfolded during Covid-19 years, when ultra-low interest rates and rapid population growth from loose immigration laws helped drive prices higher.

Since then, higher mortgage financing than prior renewal years, along with tighter immigration policy that resulted in a shrinking population, has dampened housing demand, he says.

Macdonald views the effects of higher borrowing costs especially visible in new home construction.

"The biggest impact that it's having is on new home construction," he says. "They tank new home construction. They also have a strong impact on home renovations as well as home transactions."

He points to Toronto's condo market as an example.

"We're seeing that to the extreme in places like the Toronto condo market where nothing is being built and nothing is being sold," he says.

Together, slower population growth, elevated borrowing costs, and weaker demand have cooled housing activity across many major regional markets, even as lower borrowing rates provided some support.

Learn more: Ask the mortgage expert: How to buy a home in 2026, between budgets, builders, and opportunities

What's next for interest rates?

While economists largely agree with the Bank's decision to hold rates, there is less consensus about what comes next.

Mang expects policymakers to remain on the sidelines for the rest of the year.

"Given the current level of inflation and early indicators for GDP growth this year, the Bank of Canada is unlikely to change interest rates for the rest of this year," he says.

However, renewed volatility in the Middle East has added another variable to the Bank's outlook, complicating what had been an increasingly stable inflation picture.

"Continued volatility in the Middle East means an uncertain outlook for energy prices over the coming months,” says Mang.

He explains that current oil prices, hovering around US$80 to US$85 per barrel, are unlikely to generate enough inflationary pressure to justify a rate increase. He argues the Bank would become more concerned if prices climbed back to the US$100–US$115 range from earlier this year and stayed there for an extended period. This would increase the risk that higher energy costs begin feeding into broader inflation.

Others see possibility of another rate cut if economic growth continues to disappoint. Macdonald says persistent economic weakness could eventually force the Bank to provide additional support.

"If we continued to see muted general inflation numbers with the exception of gasoline, that may well put pressure on the bank to cut rates in the face of a technical recession or more broadly no real GDP growth over the past four quarters."

Macdonald notes that while oil prices have risen in recent days, they remain well below some of the more extreme scenarios feared by markets. More importantly, he says recent inflation data show price pressures remain largely concentrated in gasoline and airline tickets rather than spreading across the broader economy.

For now, however, both experts agree the bar for any policy change remains high. While slower growth could eventually strengthen the case for rate cuts, renewed energy-price volatility has given the BoC another reason to proceed cautiously, leaving most economists expecting interest rates to remain unchanged in the near term.