Economists across Canada have been predicting the Bank of Canada would hold steady with its overnight rate at 2.25% all through 2026 and so far, the bank has proven them to be correct.
But now, the caution lights are on in the hallways of the bank that there could be a rate hike at its next rate announcement on Oct. 28.
The bank's governing council this week released a report of the minutes of its deliberations that led to holding the rate on Sept. 2.
The council noted the US/Canada tariff war would have a limited effect on the broader economy; likely modest and expected fiscal measures to offset part of the impact.
Of greater concern was a chill falling over consumer and business confidence, holding back hiring, investment, and household spending, particularly if trade tensions escalated.
In the report, the council said it would monitor the tariff war, while cautioning about the effects of the Middle East war.
"With respect to the Middle East war, members were concerned that the protracted conflict and damage to refinery capacity would keep gasoline and diesel prices high, leaving headline inflation higher for longer than anticipated," reads the report. "If higher energy prices did spill over into other components of (inflation), members agreed that it could require a monetary policy response to prevent broad-based inflation from setting in."
Gasoline and diesel prices have risen since the bank's last rate announcement and will likely cause inflation to rise above its trigger rate of 3%. The council warned that the longer energy costs stayed elevated, the greater the risk of a broader pass-through.
Following the rate hold on Sept. 2, the bank's governor, Tim Macklem was clear on the bank's position going forward.
"The data we've received since our last decision was broadly in line with our forecasts. But as I've just outlined, the risks are shifting and we are prepared to adjust monetary policy as needed," he said.
The governing council's formal statement left little ambiguity about its guiding framework: "While supply shocks can present a tension between addressing economic weakness and rising inflation, members agreed to reiterate that the stance of monetary policy will be guided by the bank's inflation forecast and the risks around it."
In a report released earlier this week, Shaun Cathcart, senior economist at the Canadian Real Estate Association said, "A Bank of Canada rate hike is officially back on the table this year and already priced in by markets."
Real estate website WOWA favours a rate hold versus a rate increase, 57% to 43%.
Financial institutions Capital Economics, RSM Canada and National Bank are expecting a rate hold, based on weaker growth outlook and tariff dispute risks offsetting short-term energy inflation.
Oxford Economics and Scotiabank are predicting a .25% increase, based on pressures from elevated global oil prices, US Federal Reserve tightening and currency protection.
With the next rate announcement more than a month away, conditions could change and will guide the bank's decision on Oct. 28