Macklem: Policy nimble as global events shape outlook

BoC Governor Tiff Macklem confirmed the Governing Council maintained the policy interest rate at 2.25 percent last Wednesday.

He outlined three key messages: Canada's economy is growing despite global events, higher global energy prices are pushing inflation up, and monetary policy aims to prevent this from becoming persistent.

Macklem noted that growth resumed in Canada after a contraction at the end of 2025, supported by consumer and government spending, though exports and business investment face headwinds from US tariffs.

The labor market remains soft, with unemployment between 6.5 and 7 percent.

The Bank projects economic expansion of 1.2 percent in 2026, 1.6 percent in 2027, and 1.7 percent in 2028.

CPI inflation rose from 1.8 percent in February to 2.4 percent in March, driven by gasoline prices, but broader pass-through to other goods and services is not yet evident.

The war in the Middle East has significantly impacted the global outlook since January, driving energy prices higher and increasing financial market volatility, which lowers global growth prospects while boosting inflation.

The Bank of Canada's Governing Council decided to look past the immediate inflationary impact of the war, but warned that persistent high energy prices would necessitate action to prevent generalized inflation.

Based on current oil price expectations, inflation is projected to peak around 3 percent in April before returning to target by early next year.

The baseline forecast assumes oil prices will decline and US tariffs will remain stable, suggesting policy rate adjustments would be minimal.

However, Governor Macklem stressed that elevated uncertainty demands a nimble monetary policy, noting potential rate cuts if new US trade restrictions emerge, or consecutive rate increases if energy prices fuel broader inflation.