Bank of Canada holds Rates, says Changes will be Small if Forecasts hold True

  • The Bank of Canada (BOC) kept its ​key interest rate unchanged on Wednesday, April 29, 2026, as expected and expressed that any changes in the rate could be small if its projections ‌for the economy held true.
  • However, Governor Tiff Macklem, citing uncertainty caused by the Middle East war and U.S. tariffs, said if oil prices stayed high and began pushing up inflation, it might have to respond with consecutive rate hikes. Macklem's comments marked the first time in recent years that he has been so specific about the path of interest rates. "If things ​evolve broadly in line with the outlook we have presented, and in particular, oil prices come down broadly in line with the futures ​curve, something close to the policy rate that we have today is probably about right," he said.
  • The BOC noted that the ⁠overall effect of the war on Canada will be modest. High oil prices are set to benefit Canada by increasing export revenues, though squeezing businesses and consumers.
  • Near-term inflation expectations have risen due to higher energy prices and elevated food prices, but long-term inflation expectations remain anchored. Inflation in ​April is expected to shoot up to about 3% from 2.4% in March, while averaging around 2.3% for this year. There is a risk that ​inflation expectations are not as well ⁠anchored as they were before COVID, Macklem said, noting public unhappiness when inflation spiked to 8.1% during the pandemic. Nevertheless, inflation is expected to fall back down to the ​2% target by early 2027.
  • The BOC also lifted its 2026 growth forecast ​to 1.2% from the 1.1% it had predicted in January. However, economists and analysts are divided on the impact of higher crude oil prices on Canada, a net exporter. 
  • Wednesday marked ​the central bank's first set of projections since the Iran war began on February 28, driving up crude and gasoline prices. Royce Mendes, head of macro strategy at Desjardins, said ‌the BoC ⁠appears comfortable leaving rates unchanged for the rest of the year, unless oil prices remain high. Once the economy recovers, central bankers will raise the policy rate gradually to 2.75%, he said, predicting that would not be till 2027.

(Source: Reuters)