The Bank of Canada (BoC) has decided to maintain its policy interest rate at 2.25%, a level unchanged since October. The Governing Council is choosing to “look through” the immediate inflationary effects stemming from the ongoing Middle East conflict, while remaining open to rate hikes if energy price shocks lead to persistent inflation.

This decision comes as inflation is projected to peak at 3% in April, driven primarily by rising gasoline prices, before returning to the 2% target by early 2027. Economic growth is forecasted to be modest, with GDP expected to grow by 1.2% in 2026 and 1.7% by 2028, hampered by trade uncertainties and US tariffs. The labor market remains soft, with unemployment rates between 6.5% and 7%, and risks from potential US trade restrictions loom.

Market professionals should note that the BoC’s cautious stance signals a delicate balance between managing inflation and supporting growth, making future rate adjustments contingent on energy price developments and trade dynamics.

Source: xtb.com