The Bank of Canada kept its benchmark interest rate unchanged at 2.25 per cent on Wednesday, marking the fourth straight decision to hold rates steady as policymakers weigh mounting global uncertainty.
The decision had been widely expected, but Governor Tiff Macklem made it clear that future moves are far from certain. He said the current rate is likely appropriate if the economy performs as projected, but warned the bank may need to react quickly if conditions shift.
Two major risks are dominating the outlook: the ongoing war involving Iran and its impact on global energy prices, and the upcoming review of the Canada-United States-Mexico Agreement.
If new U.S. trade restrictions emerge and weaken Canada’s economy, the central bank could lower rates to support growth. On the other hand, if the conflict in the Middle East keeps oil prices elevated and inflation rises further, the bank may be forced to raise rates again.
Macklem said consecutive increases are possible if inflationary pressures become more widespread.
Canada’s inflation rate rose to 2.4 per cent in March, driven largely by higher gasoline prices. The central bank expects inflation could temporarily reach around three per cent in April before easing back toward its two per cent target by early next year, assuming oil markets stabilize.
The bank also noted that Ottawa’s temporary pause on the federal fuel excise tax should help soften some of the pressure at the pumps. However, rising fertilizer costs may create new challenges for food prices, adding to affordability concerns for households.
Despite the uncertainty, the Bank of Canada’s overall economic forecast remains relatively stable. It expects Canada’s economy to grow by 1.2 per cent in 2026 and 1.6 per cent in 2027.
For Canadians, the message is clear: borrowing costs are unchanged for now, but the months ahead remain highly unpredictable. Mortgage holders, businesses and consumers should be prepared for a central bank ready to move in either direction depending on inflation, energy markets and trade developments.