Most forecasts still call for the policy rate to stay at 2.25% this year despite the Middle East oil shock
Oil prices are surging, the Middle East is at war and inflation has jumped – yet the Bank of Canada is still expected to keep its policy rate on hold at 2.25 percent.
According to the Financial Post, most economists expect a fourth consecutive hold on Wednesday as the central bank manages an oil-driven inflation shock against a weakening domestic backdrop of stagnating job growth, subdued business investment and a tepid housing market.
Economists polled by Reuters also expect the Bank of Canada to leave its overnight rate unchanged on April 29, with all 41 respondents in an April 21–24 survey calling for a hold at 2.25 percent, and more than 80 percent predicting no move this year.
CTV News reported that financial market odds of another hold on Wednesday stood above 93 percent as of Friday, based on LSEG Data & Analytics.
The latest data show the impact of the Iran war and the oil price spike flowing into consumer prices.
The article said said headline inflation rose to 2.4 percent in March from 1.8 percent in February, while Reuters reported that this is the highest reading since December but still within the Bank of Canada’s 1 percent–3 percent target range.
The Financial Post said soaring oil prices, driven by the conflict in the Middle East and supply issues from the closure of the Strait of Hormuz after attacks on Iran by the United States and Israel, are fuelling inflation pressures.
Reuters added that rising fuel costs have strained Canadian households, though Canada’s status as a net oil exporter gives the economy some cushion.
Under the hood, core inflation has been more reassuring.
CTV News reported that Oxford Economics’ Tony Stillo sees the Bank of Canada’s core metrics as “a little softer than expected,” and the Financial Post said TD economist Rishi Sondhi described the details of the inflation data as “modestly softer” than anticipated.
At the same time, both the outlets noted a modest rise in inflation expectations since the start of the Iran war.
CTV News said the Bank of Canada’s followup surveys showed at least a moderate increase in short- and medium-term expectations tied to the conflict, although some firms reported limited ability to pass on higher costs because of weak demand and existing contracts.
Governor Tiff Macklem said after the March decision that the bank would “look through” the initial rise in inflation from the oil price shock but would act if inflationary pressures started to become entrenched.
Reuters reported that Macklem also said last week that a rise in short-term inflation expectations should not worry the bank.
Gemma Stanton-Hagan of PwC told Reuters that the key risk is whether expectations of higher inflation become ingrained among consumers and businesses, and that “right now, we are not seeing that.”
On growth, the balance of risks still leans to the downside.
The Financial Post said recent Canadian data align with the Bank of Canada’s March view that risks to the outlook, including population trends and trade tensions with the US, were “tilted to the downside.”
Reuters reported that Canadian GDP is forecast to grow 1.7 percent in 2025 and 1.2 percent in 2026, and that the 2026 unemployment rate forecast was revised slightly lower to 6.6 percent from 6.7 percent.
RBC economist Claire Fan told the same outlet the labour market improvement would likely be “very choppy,” with job losses concentrated in sectors exposed to US demand and domestic demand expected to support some recovery later this year.
Some economists see the next move as higher.
The Financial Post reported that BMO’s Robert Kavcic expects the Bank of Canada to remain on hold through 2026 unless there is a material change in growth or inflation, while markets are still pricing in tightening later in 2026.
Derek Holt at Bank of Nova Scotia told the Post he agrees rates will be held on Wednesday but continues to forecast 75 basis points of hikes in the second half of 2026, taking the policy rate to 3 percent by year-end.
Others argue the next step should be lower.
David Rosenberg told the Post he expects a rate cut as the next move, pointing to inflation at 1.95 percent year over year when food and energy are stripped out, compared with 2.4 percent a year ago, and describing the economy as “as flat as an ice hockey surface.”
The tone from the Bank of Canada is likely to stay firm.
The Post said Sondhi expects the bank to “stress its willingness to act as needed to keep expectations anchored.”
Derek Holt said he anticipates “stronger warnings on the implications of an inflation shock to the policy rate’s path, but with no commitment,” and said the policy bias is likely to sound “more hawkish-sounding.”
According to CTV News, the central bank will publish a new Monetary Policy Report alongside Wednesday’s decision, likely outlining scenarios for how the Iran war and oil markets could evolve.
Reuters reported that Signal49 Research’s Pedro Antunes expects the bank to upgrade its GDP and inflation forecasts but argued that fiscal policy should take centre stage in managing the oil shock, and that the bank is focused on keeping wage growth aligned with its 2 percent target.
