BoC holds policy rate at 2.25 percent amid global risks
The Bank of Canada's Governing Council maintained its policy interest rate at 2.25 percent on April 29, 2026. The decision reflects elevated uncertainty and a readiness to look through the initial inflation impact from higher oil prices.
Navigating global and domestic uncertainties
The Governing Council assessed a global economy impacted by the Middle East conflict, elevating oil prices and market volatility.
US growth remained solid, and Chinese exports robust, but the euro area faced growth headwinds from energy costs.
Domestically, Canada's economy was expected to resume growth in Q1 2026, driven by consumer and government spending.
However, US sectoral tariffs continued to restrain business investment and exports.
The housing market showed weakness, and the labor market remained soft, with unemployment between 6.5% and 7%.
CPI inflation rose to 2.4% in March due to gasoline, though core measures indicated downward momentum.
Rent and food inflation remained elevated.
The Council projected 1.2% GDP growth in 2026, with inflation peaking at 3% before easing to 2% in early 2027, conditional on stable US trade policy and declining oil prices.
Policy patience amid twin risks
The Canadian economy faced twin risks: US trade relations and the Middle East war, both elevating uncertainty.
New US trade restrictions could weaken activity and lower inflation.
The war had already pushed up gasoline prices, creating an upside inflation risk.
The Council decided it could look through this initial shock, given CPI inflation near 2% since summer 2024, downward core inflation momentum, and labor market slack.
Members agreed they had scope for patience, but acknowledged the situation could change quickly, requiring a monetary policy response if inflation broadens and becomes more persistent.
If oil prices remained elevated, broader cost pressures could emerge, requiring policy tightening.
Uncertainty dictates a steady hand
The Bank of Canada's decision to hold rates reflects a prudent approach amid high geopolitical and trade uncertainty.
While the initial oil price shock is deemed transitory, the Council acknowledges the delicate balance between domestic slack and potential for broader inflation.
This stance provides flexibility, but future policy adjustments will be highly dependent on external developments and their persistent impact.