Inflation spike and weak labour market play into Macklem's call
The Bank of Canada elected to maintain its overnight interest rate at 2.25 per cent in a decision announced today.
The decision comes as competing forces weigh on the central bank's leadership. Inflation, which had been below the BoC's target of two per cent, spiked to 2.4 per cent in March as the US-Israeli war with Iran and consequent closure of the Strait of Hormuz caused a significant spike in energy prices.
"CPI inflation will likely rise further in April to about 3%," a press release announcingthe decision reads. "Based on the assumption that oil prices will ease, inflation is forecast to come down to the 2% target early next year and remain around 2% over the projection horizon."
Economic weakness and an anaemic labour market have been weighing on outlooks as well. In March, the unemployment rate held steady at 6.7 per cent and Canada shed 109,000 jobs in January and February. GDP growth vaccilated between positive and negative growth in each quarter of 2025.
The decision to hold was largely predicted by fixed income investors, though since the outbreak of war in the Middle East the outlook for the BoC in 2026 has been revised from the chance of a cut to the high likelihood of a hike before the year ends.
"We are closely monitoring the impact of the conflict in the Middle East and how the economy is responding to US tariffs and trade policy uncertainty. Governing Council is looking through the war’s immediate impact on inflation but will not let higher energy prices become persistent inflation. As the outlook evolves, we stand ready to respond as needed." the release reads.
