For the First Time in Years, the Next Rate Move Might Be Up

The Bank of Canada has held at 2.25 percent for nearly a year. Its language in September suggested the debate inside the bank has shifted, and employers who rely on cheap credit should take note.

When the Bank of Canada left its policy rate unchanged on Sept. 2, almost no one was surprised. It was the seventh consecutive hold, and the rate has sat at 2.25 percent since late last year.

The surprise, to the extent there was one, was in the wording.

For most of the past two years, the open question in Canadian monetary policy was how far and how fast rates would fall. In its September statement, the bank said that upside risks to inflation had increased, while new tariffs made the growth outlook more uncertain. It said it was prepared to adjust policy as needed, without specifying in which direction. Read alongside the rest of the statement, that phrasing left the door open to a hike, something few people in the staffing business have had to plan for since 2023.

Why inflation is the worry again

The culprit is mostly oil. The conflict in the Middle East has kept energy prices elevated since the spring, and the bank noted little progress in reopening the Strait of Hormuz. Headline inflation has hovered around 3 percent for several months, and the August reading, released Sept. 14, held at 3.0 percent.

So far, the damage has been contained to the pump. RBC Economics noted that the bank's preferred core measures stayed near target in August, with CPI-trim at 1.9 percent and CPI-median at 2.0 percent. Inflation excluding gasoline did tick up, though, to 2.4 percent from 2.2 percent in July.

The bank's concern is about time. The longer high oil prices and wide refinery margins persist, it said, the greater the chance they spread into the cost of other goods and services. It added a second worry: the new American tariffs and Ottawa's counter-tariffs will raise costs for some businesses, and those costs could reach consumers over time.

Growth gave the bank room to think about it

A year ago, a central bank facing tariff threats and a soft job market would have been thinking about cuts. What changed is that the economy began to recover. Second-quarter GDP grew 3.3 percent, and the bank described the pickup as broad-based, with consumption, housing, exports and business investment all improving.

It was careful not to oversell it. Some of the strength reflected temporary factors, it said, and demand for labour remains subdued, with signs of continued excess supply in the economy. Financial conditions have also tightened on their own. Long-term bond yields have risen globally, which pushes up fixed borrowing costs whether or not the bank moves.

Where the forecasters land

There is no consensus, which is itself worth noting. Before the August inflation figures, markets were pricing roughly a 58 percent chance of an October hike, according to market commentary at the time, and those odds eased after the release. RBC's base case is that the bank holds through the rest of 2026 and begins raising rates gradually in 2027 as the economy strengthens.

The next decision comes Oct. 28, alongside a new Monetary Policy Report. Before then, the bank will see September's jobs and inflation data.

What it means for staffing

Interest rates reach a staffing firm through two doors.

The first is the client. Construction, real estate, manufacturing and logistics are among the most rate-sensitive sectors in the economy, and they are also among the heaviest users of temporary labour. A hiking cycle tends to hit their capital spending first, then their project pipelines, then their contingent headcount. Firms with large light-industrial or construction books have the most exposure.