The decision
The Bank of Canada held its target for the overnight rate at 2.25% today, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
This wasn't a surprise, but the reasons behind it are messy. A new war in the Middle East has sent energy prices jumping and spooked global markets. The breadth and duration of the conflict — and what it means for the economy — are anyone's guess right now.
What's happening globally
Before the war broke out, the global economy was tracking at about 3% growth, right in line with the Bank's January forecast. The US economy has slowed a bit but is still solid, driven by consumer spending and heavy AI-related investment. US inflation is still above target and unfolding more or less as expected. In Europe, domestic demand is holding things together while exports have dropped off. China's exports are strong, but people there aren't spending much at home.
Since the conflict started, global oil and natural gas prices have surged. That's going to push inflation higher in the short term. Beyond energy, there are transportation bottlenecks — the Strait of Hormuz is effectively closed — which could choke off other commodities like fertilizer.
Financial conditions have tightened. Global bond yields are up, stock prices are down, and credit spreads have widened. The Canada-US dollar exchange rate has stayed relatively stable through all of this.
The Canadian picture
Canada's GDP grew 2.4% in the third quarter of last year, then contracted 0.6% in the fourth quarter. That pullback was weaker than the Bank expected in January, but mostly because businesses drew down inventories more than anticipated.
Domestic demand actually grew more than 2%, fueled by consumer and government spending. Housing markets stayed weak.
The Bank expects the Canadian economy to grow modestly as it adjusts to US tariffs and trade policy uncertainty, but recent data suggest near-term growth will be weaker than they thought in January. The labour market is soft. Employment gains in the fourth quarter of 2025 were mostly erased in January and February 2026, and the unemployment rate climbed to 6.7% in February. Exports also look weak once you smooth out the monthly swings.
It's too early to know how the Middle East conflict will affect growth here.
Inflation
CPI inflation eased to 1.8% in February, down from 2.3% in January. CPI inflation excluding indirect tax changes and the Bank's core measures have also come down — all are close to 2%. Food inflation slowed in February but is still elevated.
The sharp rise in global energy prices has pushed gasoline prices higher, and that will lift total inflation over the next few months.
Why they held
Against this backdrop, the Bank decided to keep the policy rate at 2.25%. Recent data point to weaker economic activity and high uncertainty, so growth risks look tilted to the downside. At the same time, inflation risks have gone up because of higher energy prices.
The Bank will keep watching how US tariffs and trade policy uncertainty play out, how the Canadian economy adjusts, and how the Middle East conflict unfolds. As things evolve, they're ready to respond. The Bank says it's committed to keeping Canadians confident in price stability through this period of global upheaval.
What this means for you
If you're renewing or shopping for a mortgage, rates are holding steady for now — but the picture is complicated. Growth is soft, inflation could spike in the short term because of energy, and global uncertainty is high.
The next rate announcement is April 29, 2026, when the Bank will also release its updated Monetary Policy Report. If you're locking in soon, talk through the timing with your broker. If you're already variable, this hold buys you some breathing room while the Bank figures out what comes next.
You can read the full statement on the Bank of Canada website.
