Rabobank strategists Molly Schwartz and Christian Lawrence expect the Bank of Canada (BoC) to maintain its overnight rate at 2.25% during the March 18 meeting and throughout the year, despite persistent inflation and weakening economic activity. The ongoing war in Iran and elevated oil prices are contributing to inflationary pressures that monetary policy cannot effectively counter, while markets are beginning to price in the possibility of a rate hike, according to the OIS curve. However, Rabobank maintains that the BoC will not raise rates this year, as the inflation is driven by external geopolitical and supply factors rather than domestic overheating, and a hike would further strain the vulnerable Canadian economy [1].
Similarly, Commerzbank’s Antje Praefcke anticipates the Riksbank will keep its policy rate at 1.75% during its upcoming meeting, signaling no immediate changes and suggesting a first rate hike may only occur late in the year. The Riksbank projects inflation rates to fall below target, with headline inflation dropping below 1% year-over-year and core inflation just above 1%. Despite the Iran conflict introducing upside risks to inflation and downside risks to growth, the central bank is expected to adopt a wait-and-see approach, monitoring developments in the conflict and energy prices. The March meeting is not expected to provide significant impetus for the Swedish krona (SEK), which remains influenced by heightened market risk aversion [2].
Both central banks are responding to the Iran conflict and rising energy prices by maintaining their current policy rates and focusing on risk management. The BoC and Riksbank are expected to hold rates steady, with forward guidance indicating that any potential hikes would be delayed until late in the year or beyond. Market reactions are muted, with the BoC’s stance fully priced in and the SEK remaining sensitive to risk aversion rather than monetary policy signals [1][2].
CONCLUSION
The Bank of Canada and Riksbank are holding their policy rates steady amid geopolitical tensions and rising energy prices, prioritizing risk management over immediate action. Both institutions signal that any rate hikes are unlikely in the near term, with inflationary pressures seen as largely external and beyond the reach of monetary policy. Market responses remain subdued, reflecting the cautious outlook and limited policy options.