BoC Holds at 2.25% But Warns ‘Consecutive’ Rate Hikes Possible: What Middle East Conflict Means for Your Mortgage

The Bank of Canada held rates steady—but the warning was anything but quiet

On June 10, 2026, the Bank of Canada kept its benchmark interest rate at 2.25% for the fifth consecutive time. On the surface, that should have been a relief for Canadian homeowners with variable-rate mortgages and anyone planning to renew. But Governor Tiff Macklem’s press conference told a very different story.

In his opening statement, Macklem made it clear that the Bank is not done. He explicitly warned that “if the conflict in the Middle East continues and higher energy prices start leading to ongoing generalized inflation, monetary policy will have more work to do—there may be a need for consecutive increases in the policy rate.”

“Consecutive” is not a word central banks use lightly. It signals that the Governing Council is genuinely considering raising rates again, possibly multiple times in a row, if conditions warrant it.

The Middle East crisis is the game-changer

The root cause of this dilemma is the ongoing conflict in the Middle East. According to Macklem, the conflict is slowing economic activity in the Gulf region and oil-importing countries worldwide while sending inflation higher.

Oil prices have remained elevated, and market expectations have shifted up since the April Monetary Policy Report. Macklem noted that oil prices are roughly $10 a barrel higher than the Bank’s own assumptions. That may not sound like much, but in a country where energy costs flow directly into everything from transportation to heating to food distribution, $10 per barrel makes a real difference.

The Bank is looking through the war’s near-term impact on inflation for now. But Macklem drew a clear line: “if energy prices stay high, we will not let their effects become broad-based persistent inflation.”

In other words, if rising oil prices start pushing up the cost of everything—not just gas and heating—the Bank will act. And “act” means raising rates, potentially multiple times.

The Canadian economy is stuck in a bind

This is what economists call a stagflationary dilemma. The Canadian economy is weak, but inflation is rising. These two forces pull monetary policy in opposite directions.

Here’s what the Bank reported since its last decision:

• GDP actually contracted by 0.1% in the first quarter, weaker than expected
• Consumer spending grew 1.4% but government spending unexpectedly pulled back
• Housing activity declined and business investment remained weak
• The labour market strengthened in May with unemployment falling to 6.6%, but monthly job numbers have been very volatile

Macklem acknowledged that when you look through the bumpiness, employment is “little changed since the start of the year” and unemployment has been fluctuating in the 6.5% to 7% range.

Economic weakness combined with rising inflation is a dilemma for monetary policy. Raising rates to dampen inflation could further slow the economy. Easing rates to support growth increases the risk that higher inflation becomes persistent.

For now, holding rates balances those risks. But the Bank made it clear this is not a comfortable equilibrium.

Inflation is ticking back up

CPI inflation rose in April to 2.8%, driven by two factors: higher global oil prices and the elimination of the Canadian consumer carbon tax, which fell out of the 12-month inflation calculation.

The Bank expects CPI to hover close to 3% in coming months before easing gradually toward 2%. That is above the Bank’s 2% target and represents a meaningful shift from the disinflation trend that had been in place for much of 2025.

Core inflation measures have moved down to around 2%, and the share of CPI components growing above 3% is close to its historical average. But food price inflation moderated but remains high, and shelter inflation continued to slow—which is the one bright spot for homeowners.

What does this mean for mortgage holders?

If rates go up, even by 0.25 percentage points, the impact on monthly mortgage payments is significant. For a homeowner with a $400,000 balance at a 5-year fixed rate of 4.5%, a rate increase to 4.75% would add roughly $150 per month to their payment.

Variable-rate borrowers are already feeling the pressure. If the Bank raises rates again, their payments go up immediately. Those on renewal soon face the prospect of locking in at a higher rate than they might have hoped.

The other risk: US trade restrictions

Macklem also warned about the flip side of the risk equation. “If the United States imposes significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth.”

This is a direct reference to ongoing trade policy uncertainty from the US administration. New tariffs or trade barriers could severely damage the Canadian economy, forcing the Bank to cut rates to provide stimulus.

The Bank is essentially saying: we are caught between two potential storms—one from the Middle East pushing inflation up, and one from US trade policy potentially pushing growth down.

The bottom line

The Bank of Canada’s June decision was not a signal that rate hikes are off the table. Quite the opposite. Macklem’s use of the word “consecutive” was a clear message that the Governing Council is prepared to raise rates again if energy-driven inflation becomes entrenched.

For Canadian homeowners, this means the period of rate stability may not be as stable as it appears. The next few months will be critical in determining whether the Bank needs to move rates up or down—or both, depending on how global events unfold.

The Bank is committed to price stability. But in a world of Middle East wars, US trade threats, and structural economic changes, “committed to price stability” may mean higher rates than most Canadians are hoping for.