The Bank of Canada (BoC) is expected to keep its monetary policy rate unchanged at 2.25% for the fourth consecutive meeting, as it awaits further economic data to assess the impact of the US-Iran war and the resulting energy price shock on inflation and growth [1][6]. The BoC previously left its rate unchanged in March and removed forward guidance, noting weakened economic growth in the first quarter and persistent high energy prices due to Middle East conflict [1]. March CPI data showed inflation accelerating to 2.4% year-on-year from 1.8% in February, exceeding the BoC’s 2% target but falling short of the 2.5% market expectation, giving the central bank some leeway to wait for additional data [1]. The BoC’s latest projections foresee inflation easing to 2.2% by year-end and 2.1% in 2027 [1]. Governor Tiff Macklem has indicated no immediate monetary policy reaction is warranted, expressing little concern about the short-term spike in prices [1].
Canadian economic growth has shown signs of stalling, with GDP contracting at a 0.6% annualized pace in Q4 2025 and barely rising 0.1% in January. The IVEY PMI unexpectedly fell into contraction in March, suggesting sluggish growth in early 2026 [1]. Rabobank’s Bas van Geffen expects the BoC to keep its overnight rate at 2.25% through year-end, noting that inflation had been near target before the energy-driven spike revived upside risks, but growth remains volatile and productivity weak. He believes policymakers will look through the external shock and maintain a steady stance given the soft domestic outlook [6].
Market analysts at TD Securities also expect the BoC to stay on hold for the rest of 2026, especially given the downside surprise on recent CPI. December is currently priced in at 2.61%, and a return to pre-war levels is expected to be gradual rather than triggered by a single dovish data point or communication [1]. The BoC will announce its policy decision on Wednesday at 13:45 GMT, followed by a press conference with Governor Macklem at 14:30 GMT [1].
Currency markets have remained stable, with the US Dollar showing resilience against the Canadian Dollar, as investors adopt a cautious tone amid concerns over rising crude oil prices feeding into global inflation [2]. The CAD has not shown significant movement against the USD this week, with a 0.00% change reported [2].
CONCLUSION
The Bank of Canada is set to maintain its policy rate at 2.25%, prioritizing stability amid volatile energy prices and weak domestic growth. Analysts expect the BoC to remain on hold through year-end, viewing the energy-driven inflation spike as transitory. Market reaction has been muted, with the CAD largely stable against the USD, reflecting cautious sentiment ahead of the central bank's announcement.