Canada’s inflation touched 3.2% in May but cooled to 2.8% in June as negotiation talks reduced oil prices from over US$90 to US$70/barrel. The oil price has surged once again in July, hinting at another month of high inflation. The Bank of Canada is monitoring inflation while maintaining the interest rate at 2.25% since October 2025.
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Why is the Bank of Canada not increasing the interest rate?
Understand this: homeowners who took a traditional five-year mortgage in 2021 when the interest rate was at a record low of 0.25% will renew their mortgages at five times the interest rate of 2.25%. Increasing interest rates at this point could further strain homeowners who will face a higher interest expense from this year. Add to this the high energy and gasoline costs. What an interest rate hike tends to achieve – make borrowing expensive – the mortgage renewal will automatically do.
Thus, the central bank is moving with caution and avoiding an interest rate hike. If inflation increases and becomes difficult to control without its intervention, it might increase interest rates. A rate hike takes time to seep into the economy and affect prices. However, the immediate benefit is felt by lenders as they increase rates on variable loans.
Canadian dividend giants to buy with rates on hold
The direct beneficiary
One reliable dividend stock you can invest in for dividend growth is Royal Bank of Canada (TSX:RBC). It is the largest stock by market cap trading on the TSX. Its strength lies in its sheer size and more than 100 years of banking operations, and still growing strong. RBC is at the core of the Canadian financial system as it caters to a significant percentage of the population. Its US and Canadian banking operations tend to do well when interest rates rise, as banks get to increase loan yields while the impact on term deposits is felt later.
The growing pressure of inflation due to the Iran war has made investors cautious about a rate hike. This has kept the RBC stock in a bull run, with the share price surging 32% in the second quarter of 2026. While it may not seem like a wise decision to buy the stock at its all-time high, it is a stock you can buy in small amounts over years.
The bank saw its net interest income surge 6% year-over-year in the second quarter, reflecting higher mortgage roll-on rates. The mortgage spreads are expected to be marginally higher by the end of 2026, which could continue to grow net interest income and earnings per share throughout the year. RBC has grown its dividend at an average annual rate of 10% over the last 26 years. It won’t be surprising if the bank grows its dividend by high single digits in 2027.
The indirect beneficiary
Another dividend stock to buy is the one with a leveraged balance sheet. With interest rates stable since October 2025, companies with high debt get a chance to restructure their debt and lower their interest rates. A key beneficiary of this could be Enbridge (TSX:ENB), which is investing extensively in new gas pipelines over the next three years. It has a fully funded $40 billion capital program, with major projects scheduled to come online by 2027 and 2028.
A stable interest rate can help it service the massive debt of over $100 billion. A rate hike could negatively impact the stock price, but Enbridge’s low-risk business model could reduce its downside risk.
Interest rates are just one of the many factors to consider when buying Enbridge stock. You could wait for oil prices to cool before buying the stock. While its profits are not significantly influenced by oil and gas prices, the share price does feel the impact.
