The Bank of Canada announced it will keep its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
In its April outlook, the Bank highlighted two main sources of global uncertainty: the evolving conflict in the Middle East and shifting US trade policy. Policymakers built their baseline projections on the assumption that tariffs will remain unchanged and that the global benchmark price of oil will decline to US$75 per barrel by mid-2027.
The statement noted that the Iran war has driven a sharp rise in energy prices and caused transportation disruptions. These developments, the Bank said, have reduced growth prospects for oil-importing countries and pushed inflation higher worldwide.
On regional growth patterns, the Bank reiterated that U.S. economic activity is expected to remain solid across the projection horizon, supported by AI-related investment and consumption growth. China's economy is described as being supported by robust export performance. By contrast, the euro area is expected to face headwinds from higher oil and natural gas prices.
Financial conditions have reflected the heightened uncertainty. The Bank pointed to volatile markets tied to daily developments in the Middle East and changing expectations for inflation and interest rates. Since January, bond yields are modestly higher, while equity markets - which weakened sharply at the start of the war - have since recovered. The U.S. dollar has appreciated against most major currencies since the conflict began, while the Canada-U.S. exchange rate has remained relatively stable.
At the global level, the Bank projects economic growth of about 3% in 2026, 2027 and 2028. It said projections for inflation over the next year were revised upward in response to the jump in energy prices.
Within Canada, the Bank judged the outlook for economic growth to be little changed from the January Monetary Policy Report projection. After a contraction in the fourth quarter of 2025, growth is forecast to have resumed in early 2026. The Bank credited consumer and government spending with supporting activity, while noting that tariffs and trade uncertainty are weighing on exports and business investment.
Housing activity declined in the fourth quarter and continues to be constrained by slow population growth, economic uncertainty and persistent affordability challenges. The labour market is described as soft: employment growth over the past year has been subdued, with job losses concentrated in sectors targeted by U.S. tariffs. The unemployment rate is said to remain in the 6½%-7% range, reflecting both weak hiring and fewer job seekers.
Projections in the Bank's April forecast show Canadian GDP growth of 1.2% in 2026, rising to 1.6% in 2027 and 1.7% in 2028 as exports and business investment resume growth, albeit along a lower trajectory. With GDP expected to grow slightly above potential, the Bank anticipates the current excess supply in the economy will be gradually absorbed. It also noted that while the war in Iran could change the composition of that adjustment, overall GDP growth in the updated forecast is little changed.
The Bank underscored a structural point about Canada’s economy: as a large net exporter of oil, higher oil prices increase national income even as consumers face higher gasoline costs.
On inflation, the Bank reported that CPI inflation rose to 2.4% in March, driven by sharply higher gasoline prices. That March increase followed several months of slowing inflation data. Core inflation has been easing and held steady at just above 2% in the most recent inflation report. The share of CPI components rising above 3% has declined in recent months.
The Bank said there is, so far, little evidence that the recent jump in oil prices has broadly passed through to goods and services prices, but it added that this development warrants close monitoring in the months ahead. Near-term inflation expectations have moved up because of higher gasoline prices and still-elevated food price inflation, while longer-term inflation expectations have remained anchored.
The Bank expects CPI inflation to rise further in April to about 3%. Based on the assumption that oil prices will ease, inflation is forecast to return to the 2% target early next year and to remain around 2% over the remainder of the projection horizon.
Weighing these projections and current conditions, the Governing Council decided to maintain the policy rate at 2.25%. The Bank said it is closely monitoring the impact of the conflict in the Middle East and the economy's response to U.S. tariffs and trade policy uncertainty. The Governing Council indicated it is treating the war's immediate impact on inflation as transitory but reiterated that it will act to prevent higher energy prices from becoming a persistent inflationary factor. The Bank concluded by saying it stands ready to respond as needed and is committed to preserving Canadians' confidence in price stability during this period of global upheaval.