The Bank of Canada held its overnight rate at 2.25% on September 2, the seventh consecutive decision without a move and the longest stretch of the current cycle. Governor Tiff Macklem called July's 3% inflation reading too high for the Bank's comfort. The Bank held anyway, and the reason it gave for holding is not the reason most Canadians would guess.
Why the Bank Is Not Chasing the Number
Macklem's framing separated two sources of upward price pressure. Canada's own retaliatory tariffs, he said, carry a fairly modest inflationary effect. The larger driver is the global energy shock: Brent and WTI crude have both pushed back toward $100 a barrel as Iran's attacks in the Strait of Hormuz continue, and monetary policy has no tool for that. Raising the policy rate does not reopen a shipping lane or lower a tanker's risk premium. It only slows the parts of the Canadian economy the Bank can actually reach, at a moment when U.S. tariffs are already set to weigh on fourth-quarter growth.
The rate path below runs from the last cut in the cycle through Tuesday's hold, and the flat line since October 2025 is now the longest stretch without a move since the cuts began.
The shaded band marks the seven consecutive holds since the October 29, 2025 cut, the cycle low. The rate fell 275 basis points over nine decisions between June 2024 and October 2025. Source: Bank of Canada.
The Mechanism That Actually Matters for October 28
Every Economy Desk story about a Bank of Canada decision runs through the same chain: the CPI print shapes the Bank's calculus, the calculus shapes the Government of Canada yield curve, and the yield curve shapes fixed mortgage rates for the roughly one in three Canadian households renewing over the next two years. Canada's 10-year yield sat at 3.78% as of the last close, itself a function of the market pricing more hold risk than cut risk into the curve. Traders are pricing better than a 92% probability that October 28 becomes hold number eight.
What could break that probability is not the tariff dispute, on the Bank's own account. It is a further leg up in oil, driven by an escalation in the Strait of Hormuz that has already killed two sailors this week and cut shipping traffic through the strait by an estimated 95% since the wider conflict began in February. If that keeps pushing headline CPI higher through the fourth quarter, the Bank's fairly modest tariff assessment stops being the binding constraint, and the case for an eighth hold gets harder to make in real time rather than easier.