Bank of Canada Holds Policy Rate at 2.25%

On Wednesday, the Bank of Canada announced that it held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

The Bank cited volatile financial conditions tied to developments in the Middle East and shifting market expectations for inflation and interest rates. Bond yields have edged higher since January, while equity markets, which fell sharply at the outset of the war, have since recovered. The US dollar has appreciated against most major currencies, while the Canada–US exchange rate has remained relatively stable.

The Bank said the global economy is expected to grow by about 3% in 2026, 2027, and 2028, with inflation projections for the coming year revised higher due to rising energy prices.

The Bank’s April forecast projects GDP growth of 1.2% in 2026, increasing to 1.6% in 2027 and 1.7% in 2028, as exports and business investment recover along a lower trajectory. With GDP growing slightly above potential, excess supply in the economy is expected to be gradually absorbed.

Governing Council said it is closely monitoring the impact of the Middle East conflict, as well as US tariffs and trade policy uncertainty. While higher oil prices are boosting national income, they are also increasing costs for consumers. The Bank stated it will look through the immediate inflationary effects of the conflict but remains committed to preventing higher energy prices from becoming persistent inflation.