The Bank of Canada's decision on September 2 was, on its face, a non-event. The policy rate stayed at 2.25%.[1] For anyone financing rental construction in Ontario, the more important parts of the statement were further down, in two sentences about tariffs and bond yields.

What the Bank said

The Bank's reasons for holding were a mix of good and bad news:[1]

  • Second-quarter GDP grew 3.3%, a broad rebound after a very weak first quarter. Housing activity also picked up.
  • Unemployment edged down to 6.4% in July, though the Bank still sees excess supply in the economy.
  • CPI inflation has been running around 3%, mainly because of gasoline. Excluding gasoline, it was 2.2% in July, and core measures were close to 2%.

The Bank also said new US tariffs and Canadian counter-measures had been announced after trade talks between the two countries broke down, and that these could raise costs for some businesses and feed into prices over time. It noted that financial conditions have tightened since July, with long-term bond yields rising globally, including in Canada.[1] It said the upside risks to inflation have increased and that it is prepared to adjust policy as needed.

Where tariffs show up in a building

Statistics Canada's construction price data shows where trade tensions were already hitting before the latest round. In the second quarter, residential building costs across 15 major metropolitan areas rose 0.5% from the previous quarter and 2.3% from a year earlier.[2]

The detail matters more than the average. The divisions with the biggest increases were metal fabrications (up 2.1%), structural steel framing (up 1.8%) and earthwork (up 1.5%). StatCan said metal and steel products led cost increases because of retaliatory tariffs and related supply chain disruptions. Builders also reported higher fuel prices raising costs for equipment and material transport.[2]

Toronto was one of only three metro areas where residential costs fell in the quarter, down 0.8%.[2] Builders in Ontario also told StatCan that uncertainty about the federal GST/HST rebate delayed purchase decisions until the enabling legislation took effect on June 22.[2] A quiet quarter in Toronto doesn't mean the tariff pressure has passed. It may mean demand was weak enough to absorb it.

Non-residential construction, which includes the commercial space at the base of many mixed-use rental buildings, saw bigger increases: up 1.4% in the quarter and 3.5% from a year earlier. London was among the metro areas with the largest quarterly non-residential increases, at 2.1%.[2] For projects that combine apartments with retail or institutional space, the blended cost increase can be higher than the residential index alone suggests.

Why this matters for lenders

Construction lenders, whether banks, private funds or government programs, are exposed to cost risk in a few specific ways:

  1. Budget overruns. A rental tower takes years to build. If steel, metal components or fuel costs rise faster than the budget's contingency, someone has to fund the gap, usually the borrower's equity first and then the lender's patience.
  2. Interest reserves. Many construction loans include a reserve to cover interest until the building earns income. Delays from supply chain problems eat into that reserve.
  3. Take-out risk. Construction loans are usually repaid by long-term financing once the building is stabilized. The pricing of that long-term debt depends heavily on government bond yields, which the Bank says have moved up. A hold on the overnight rate doesn't protect a project whose take-out is priced off longer-term rates.

Questions worth asking now

Without suggesting any particular course of action, the September statement points to a few questions lenders and borrowers are likely to put to current projects:

  • How much of the remaining budget is tied to steel, metal fabrications or imported components, and is that pricing fixed?
  • Does the construction contract allocate tariff-related cost changes to the contractor or the owner?
  • How much contingency remains, compared with the share of work left to complete?
  • What does the project's debt coverage look like if long-term rates are higher at completion than at underwriting?

The bigger picture

The Bank's framing was that the economy is recovering broadly but that tariffs and high energy prices pose real risks to that recovery.[1] For rental construction, those risks arrive through costs and long-term rates rather than through the policy rate. A hold at 2.25% keeps variable-rate construction debt where it was. It doesn't change what a building costs to finish, or what its permanent mortgage will cost when it's done.

Sources

[1] Bank of Canada maintains the policy rate at 2¼%, Bank of Canada (Sept. 2, 2026): https://www.bankofcanada.ca/2026/09/fad-press-release-2026-09-02/

[2] Building construction price indexes, second quarter 2026, Statistics Canada, The Daily (July 24, 2026): https://www150.statcan.gc.ca/n1/daily-quotidien/260724/dq260724b-eng.htm