The Bank of Canada held its target for the overnight rate at 2.25% on Wednesday, with the bank rate at 2.5% and the deposit rate at 2.20%.
It’s the third hold in a row of the overnight, following a series of cuts in 2025.
In its opening statement, the bank’s governing council said, “The war in the Middle East has increased volatility in global energy prices and financial markets and heightened the risks to the global economy. The breadth and duration of the conflict, and hence its economic impacts, are highly uncertain.”
The bank noted global oil and natural gas prices have risen sharply, and this will boost global inflation in the near-term.
“In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities,” it said.
GDP in Canada declined to 1.8% in the fourth quarter of 2025, weaker than the bank had anticipated, caused by a larger-than-expected drawdown in inventories.
“Domestic demand grew by more than 2% due to strength in consumer and government spending, even as housing markets remained weak,” said the bank.
"We continue to expect the Canadian economy to grow modestly as it adjusts to US tariffs and trade policy uncertainty, but recent data suggest that near-term economic growth will be weaker than anticipated in January,” it said. “The labour market remains soft; employment gains in the fourth quarter of 2025 were largely reversed in the first two months of 2026, and the unemployment rate rose to 6.7% in February.”
The Canadian inflation rate fell to 1.8% in February, down from 2.3% in January. Food inflation slowed in February but remains high. The increase in global energy prices has seen a large increase in gasoline prices, which will increase overall inflation through the spring.
“With recent data pointing to weaker economic activity and uncertainty, elevated risks to growth look tilted to the downside,” said the bank, adding it is monitoring the Middle East conflict and assessing its impact on growth and inflation “As the outlook evolves, we are ready to respond as needed."
"The bank is committed to ensuring Canadians continue to have confidence in price stability through this period of global upheaval.”