Canada’s inflation rate remained at 3% in August, matching the July reading and tempering expectations that the country could quickly return to a lower-interest-rate environment. Energy prices continued to contribute to inflationary pressures.
The latest inflation data could give the Bank of Canada reason to maintain its current policy stance for now. The central bank has kept its benchmark interest rate steady at 2.25%. However, if energy prices remain elevated and economic and labour-market conditions continue to improve, policymakers could face pressure to raise rates sooner than currently anticipated.
A prolonged period of higher interest rates can weigh heavily on corporate profitability, especially for businesses that rely on significant debt or ongoing capital investment. Telecommunications companies, real estate investment trusts (REITs), and utilities are among the sectors that are most affected by elevated rates.
As high interest rates continue to bite, corporate earnings for these two Canadian stocks are under pressure.
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BCE stock
Canadian telecommunications company BCE (TSX: BCE) continues to face pressure from elevated interest rates, largely because its business requires significant debt to fund network infrastructure and other capital-intensive investments. In the second quarter of 2026, BCE’s interest expense rose by $27 million compared with the same quarter a year earlier. Year to date, interest costs were also $48 million higher than in the comparable period in 2025. Higher borrowing costs and larger average debt balances primarily drove the increase.
The rise in financing costs has weighed on BCE’s earnings and reduced the cash flow available to the business.
Despite these challenges, BCE is taking steps to strengthen its balance sheet while continuing to invest in key growth areas. The company brought its net debt leverage ratio down modestly to around 3.7 times and remains focused on reducing debt. Management continues to target a leverage ratio of approximately 3.5 times by the end of 2027.
BCE also benefits from a broad mix of businesses, including wireless communications, fibre internet, AI-enabled enterprise services, and media. This diversified operating base could provide multiple revenue sources as the company works to improve its financial position and continue returning capital to shareholders.
Although higher interest rates remain a headwind for BCE’s profitability, the company’s efforts to improve efficiency, strengthen customer retention, reduce leverage, and deliver profitable growth could help support its dividend and share price.
RioCan REIT stock
RioCan REIT (TSX: REI.UN) faces high interest rate risk. The REIT owns and manages a diversified portfolio of 164 properties, primarily in Canada’s major urban centers. Many of these properties are occupied by grocery stores, pharmacies, and service-oriented businesses, adding stability to its operations.
Notably, RioCan has maintained a relatively high proportion of fixed-rate debt compared with floating-rate obligations. Moreover, it has staggered its debt maturities to reduce refinancing concentration. However, interest rates remain an important factor affecting its financial performance. This is because interest expense is a substantial part of its overall cost of owning and operating real estate assets.
Its interest expenses have increased so far in 2026. However, its high-quality portfolio continues to support its growth. RioCan’s retail committed occupancy stood at 98.8% at the end of the second quarter, highlighting the resilience and continued demand for its properties. High occupancy levels provide the REIT with relatively stable rental income.
RioCan has also been working to streamline and improve its asset base by reallocating capital away from non-core properties and assets. RioCan is directing the capital generated from these transactions toward high-return opportunities, debt reduction, and retail acquisitions.
Overall, RioCan’s high-quality portfolio, strong occupancy levels, and efforts to manage leverage support the investment case. However, the REIT remains exposed to the financial effects of elevated borrowing costs. Its relatively high debt level means persistently high interest rates could continue to weigh on earnings and cash flow.
