Macklem holds policy rate at 2.25%, cites war and trade uncertainty

The Governing Council maintained the policy interest rate at 2.25 percent, a level held since October.

The Canadian economy remains in excess supply and is growing slowly, adjusting to US tariffs and broader uncertainty.

GDP contracted by 0.6 percent in the fourth quarter of last year, weaker than previous forecasts, primarily due to inventory drawdowns.

Despite this, domestic demand saw 2.4 percent growth, driven by consumer and government spending, while housing remained weak.

Early 2026 data suggests renewed but slower expansion.

The labor market softened, with job gains largely reversed in the first two months and the unemployment rate rising to 6.7 percent in February.

Inflation eased to 1.8 percent in February from 2.3 percent in January, with core measures close to 2 percent.

However, the sharp increase in global energy prices is expected to push up inflation in the coming months.

The war in Iran introduces a new layer of uncertainty, with its impact on Canadian growth still unclear.

Higher oil prices could boost energy exports but also squeeze consumers, reducing income for other spending.

Financial conditions have already tightened, with global bond yields higher, stock markets lower, and credit spreads wider.

Transportation bottlenecks from the Strait of Hormuz closure could impact other commodity supplies.

These factors tilt risks to economic growth to the downside, while inflation risks are tilted to the upside due to energy prices.

The ongoing review of the Canada-United States-Mexico Agreement also adds significant uncertainty to the outlook.