Rates held steady at 2.25 percent amid global uncertainty
The Bank of Canada's Governing Council held its policy interest rate unchanged at 2.25 percent at its March 18, 2026 meeting. Members cited heightened uncertainty from the war in Iran and its impact on global growth and inflation.
Navigating new global uncertainties
The Bank of Canada's Governing Council held its policy interest rate at 2.25 percent on March 18, 2026, citing a new layer of uncertainty from the war in Iran.
This conflict sharply increased energy prices and tightened global financial conditions.
While acknowledging potential for weaker near-term growth and upside risks to inflation, the Council believed it was too early to fully assess the net impact on the economic outlook.
Members agreed to "look through" the immediate effect of the oil price shock on inflation, but committed to respond if price increases spread and became persistent.
They noted flexibility, as inflation was close to target, with core measures suggesting limited underlying pressures.
This allowed time to observe the conflict's evolution and its implications, emphasizing a risk management approach and keeping policy options open.
The Council also considered other existing risks, including shifting US trade policy and structural changes, agreeing not to lose sight of these broader challenges.
Mixed signals from global and domestic economies
Global growth continued at about 3 percent, in line with January projections, but the Iran war introduced significant uncertainty, sharply increasing energy prices.
US economic activity moderated but remained solid, with the 2026 outlook stable, driven by consumption and AI investment.
Euro area data was mixed, and China's growth relied on strong exports.
Global financial conditions tightened modestly, with higher bond yields and wider credit spreads.
Domestically, Canadian GDP decreased by 0.6 percent in Q4 2025 due to inventory adjustments, though final domestic demand remained solid.
The economy was expected to expand slower than anticipated in H1 2026.
Retail trade showed solid consumption, but the housing market remained weak.
Employment declined in January and February, with broad-based job losses.
Total CPI inflation eased to 1.8 percent in February from 2.3 percent in January, with core measures approaching 2 percent.
Cautious pause in a volatile landscape
This rate hold signals a prudent wait-and-see stance, allowing the Bank to gauge the full impact of the Iran conflict on global and domestic conditions.
The new energy price shock presents a difficult trade-off, balancing upside inflation risks against existing economic softness.
Such a cautious approach, prioritizing flexibility and data dependence, is essential in an increasingly uncertain global landscape.