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Where Are Interest Rates Headed? Short- and Long-Term Perspectives for Canadian Business Owners 

Interest rates in Canada may hold steady or rise slightly in the short term, but the long-term trend will depend on inflation, central bank policy, and global economic stability.

The Current Situation

As of August 2025, the Bank of Canada’s overnight rate is at its highest level in more than a decade, reflecting a multi-year effort to bring inflation under control. Rates have remained steady for several months, and markets are watching for signals of the next move.

Short-Term Outlook (Next 6–12 Months)

  • Most economists expect rates to stay stable or potentially rise by 0.25% in the coming months if inflation data remains stubborn.

  • The Bank of Canada is cautious about cutting rates too quickly, aiming to avoid a rebound in inflation.

  • For businesses and households, borrowing costs will likely remain elevated compared to pre-2022 levels.

Key factors:

  • Inflation trends: If inflation falls meaningfully, a rate cut could come by mid-2026.

  • Labour market: Persistent job strength could keep rates higher for longer.

  • Global events: Geopolitical shocks or supply chain disruptions may push rates up temporarily.

Long-Term Outlook (2+ Years)

  • The consensus view is for gradual easing of interest rates as inflation returns closer to the Bank’s 2% target.

  • Rates are unlikely to return to near-zero, ultra-low levels seen in the 2010s.

  • Over the long term, expect a “new normal” with rates higher than the last decade, but lower than current peaks.

Key drivers:

  • Structural inflation pressures (housing, wages, supply chain resilience)

  • Global monetary policy (Federal Reserve and other central banks’ actions)

  • Economic growth and productivity gains

Savvy CFO Advice Box

Review your debt portfolio and cash flow forecasts. If your business is sensitive to rate hikes, consider locking in rates or refinancing. For investments, a higher-rate environment may change your risk and return profile.