Canadians may soon face higher borrowing costs if the Bank of Canada (BoC) decides to raise its key interest rate next week. The central bank has kept the rate steady at 2.25% for several months, but recent economic developments could prompt a change. Inflation has slowed to 2.8% in June, partly due to falling gasoline prices, but other factors like food inflation remain elevated.
The BoC has expressed concerns over private credit risks and the potential impact of geopolitical tensions, particularly the war in Iran, which could drive up oil prices. Governor Tiff Macklem has warned that consecutive rate hikes might be necessary if oil prices continue to rise. The bank also noted that while Canada's economy is weak, it is not clearly in a recession.
The decision comes amid a backdrop of economic uncertainty, with the BoC balancing the need to control inflation against the risks of stifling economic growth. The central bank has held the rate at 2.25% since October 2025, after cutting it from 2.5% due to the impact of U.S. tariffs on the economy. The upcoming rate decision will be closely watched by Canadians, especially those with variable-rate mortgages and loans.