The Bank of Canada’s governing council has concluded it must depend on judgement to a greater extent than normal when making interest-rate decisions, citing elevated global uncertainty, according to minutes published on Wednesday.
The central bank left its benchmark policy rate unchanged at 2.25% at its March 18 decision. Governor Tiff Macklem told the council the bank would look through the immediate impact of the war in Iran on inflation but would act if higher inflation proved persistent.
The minutes note that the conflict in Iran triggered a sharp rise in benchmark crude oil prices, raising concerns about a broader upward impulse to inflation. Council members said it remained premature to conclude what the longer-term effects of the conflict would be.
"They acknowledged that they would need to rely on judgment more heavily than usual and take a risk management approach to monetary policy," the summary of the deliberations said. Members agreed to keep their options open while closely watching developments in the Middle East, shifts in U.S. trade policy and incoming economic data.
Since October, the Bank of Canada has held its policy rate at the lower end of what it judges to be a neutral range - a stance the minutes describe as neither stimulative nor restrictive. Inflation has been around the midpoint of the bank's 1% to 3% control range for almost a year, a situation that the council said leaves some latitude in the timing of any policy moves.
Given that inflationary pressures so far appear muted, council members felt they could allow more time to observe how the Iran war unfolds and to assess its implications for the economic outlook.
Economic momentum and labour market strength have eased in recent months amid trade uncertainty and a scheduled review of the United States-Mexico-Canada Agreement. The council agreed that the energy price shock stemming from the conflict would lift inflation in the near term, but at this early juncture the scale and persistence of that effect on the broader economy were uncertain.
Financial markets are reflecting these risks: money markets have priced in two rate hikes in the second half of the year after President Donald Trump signalled the conflict could end in two to three weeks. The minutes emphasize a watchful, flexible approach as events and incoming data clarify the outlook.
Overall, the governing council framed its immediate policy stance as cautious and data-dependent, prepared to act if inflation became persistent but willing to allow more time to evaluate evolving global developments.