OTTAWA - The Bank of Canada maintained its policy rate at 2.25% on Wednesday and released an accompanying statement from Governor Tiff Macklem, who appeared with Senior Deputy Governor Carolyn Rogers to discuss the central bank's quarterly Monetary Policy Report and the decision.
The governor framed the policy update around three principal messages. First, he said Canada continues to be buffeted by global developments and geopolitical uncertainty, yet the economy is growing and is expected to keep expanding. Second, after more than a year with inflation close to the 2% objective, elevated global energy prices have pushed overall inflation higher, with a pronounced rise in gasoline jointly affecting household budgets along with still-high food price inflation. Third, Macklem said monetary policy will focus on preventing the recent energy-price-driven jump in inflation from becoming persistent while helping the economy adjust to global headwinds.
At this week's meeting the Governing Council chose to hold the policy rate at 2.25%, a level it has maintained since October. The council's decision reflects the view that, under the baseline forecast, policy settings near current levels appear appropriate to support the economy's adjustment and bring inflation back to target. However, the council also signaled it could adjust the policy rate should risks evolve differently from the base case.
Outlook and growth projections
The Bank said growth appears to have resumed in Canada after a contraction at the end of 2025. Current spending by consumers and governments has been supporting activity, while exports and business investment face headwinds from U.S. tariffs and trade uncertainty. Macklem described the labour market as softening, with the unemployment rate remaining in a 6.5%-7% range due to both weak hiring and fewer people searching for work.
In the Bank's forecast released with the statement, projected GDP growth is largely unchanged from the January outlook. The Bank expects real GDP to expand 1.2% in 2026, 1.6% in 2027 and 1.7% in 2028, anticipating a gradual resumption of export growth and business investment. With GDP growth modestly above potential in that profile, the central bank expects excess supply in the economy to be slowly absorbed.
Inflation dynamics
Macklem noted that until the outbreak of war in the Middle East the Bank had expected inflation to remain close to the 2% target. Since the January forecast, the conflict has driven global energy prices materially higher, raised financial market volatility and disrupted shipping for fertilizer and other commodities. Those developments have reduced the outlook for global growth while boosting inflationary pressures.
In Canada, headline CPI inflation rose from 1.8% in February to 2.4% in March, driven in part by sharply higher gasoline prices. The statement highlighted that core inflation has been easing and was held just above 2% in March. The share of CPI components with year-over-year increases above 3% has also declined in recent months.
The Bank said that to date there is little evidence that the latest rise in oil prices has fed broadly into prices for other goods and services, but that it is still early and the situation will be monitored closely. Near-term inflation expectations have moved up with the rise in gasoline and continued food-price inflation, while longer-term expectations remain anchored.
Oil price assumptions and implications for inflation
Bank staff's baseline assumes oil prices will fall from an average of about US$90 a barrel in the second quarter to roughly US$75 a barrel by the middle of next year. If markets follow that path, the Bank projects CPI inflation should peak near 3% in April and then decline back toward the 2% target by early next year.
Given that outlook, the Bank said the monetary policy required to achieve its inflation objective will depend substantially on future developments related to the Canada-United States-Mexico trade agreement, the course of the Middle East conflict and the effects of U.S. tariffs and higher energy prices on the Canadian economy.
Policy stance and conditionality
While the Governing Council said it would look through the immediate effects of the Middle East war on inflation, it made clear it will not permit sustained high energy prices to become generalized inflation. If energy prices remain elevated and that starts to lift broad-based inflation, the Bank acknowledged there could be a need for consecutive policy rate increases.
Conversely, the Bank indicated that if the United States imposes significant new trade restrictions on Canada, monetary policy might need to be eased further to support growth. Overall, the Bank described current uncertainty as unusually elevated and said monetary policy may need to be nimble in response to a range of possible outcomes.
Monitoring and readiness to respond
Macklem stressed that the Bank will closely watch developments in energy markets, trade tensions and the broader economic outlook, assessing their implications for growth and inflation. He reiterated the Bank's commitment to maintaining Canadians' confidence in price stability during this period of global upheaval and said the central bank stands ready to respond as needed.
The governor and the Senior Deputy Governor concluded by opening the floor to questions.