Bank of Canada Holds Interest Rate at 2.25% as Global Tensions Threaten Markets

2026-04-29 economy

Ottawa, Wednesday, 29 April 2026.
Despite a record 21% surge in gas prices driven by Middle East conflicts, the Bank of Canada held its key interest rate at 2.25% today, betting on long-term stability.

Balancing Volatility with Policy Restraint

On April 29, 2026, the Bank of Canada (BoC) maintained its overnight interest rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20% [4]. This marks the fourth consecutive hold this year [5][7]. The decision reflects a cautious approach from Governor Tiff Macklem and the Governing Council, who are navigating heightened volatility stemming from the Middle East conflict and uncertain U.S. trade policies [4]. While headline inflation climbed to 2.4% in March 2026—representing a 33.333% relative increase from the 1.8% recorded in February [7]—core inflation has been easing, holding steady just above the central bank’s 2% target [4].

The Dual Impact of Global Trade and Conflict

Canada’s position as a large net exporter of oil creates a complex economic dynamic during global energy crises [4][8]. While consumers face severe pain at the pump, higher oil prices simultaneously increase national export revenues, providing a modest overall boost to the broader economy [6][8]. However, this buffer is partially offset by ongoing trade friction with the United States [4]. U.S. tariffs imposed roughly a year ago have severely impacted key Canadian industries; for instance, steel exports have been cut in half, and softwood lumber exports and employment have fallen by 20% compared to the 2024 average [7].

Future Projections and the Threat of Rate Hikes

Looking forward, the BoC anticipates a temporary inflation spike, projecting the Consumer Price Index (CPI) will peak at approximately 3% in April 2026 before cooling [4][7][8]. This forecast hinges on a crucial baseline assumption: that global benchmark oil prices will gradually decline to US$75 per barrel by mid-2027 and that U.S. tariffs will remain unchanged [4][6][7]. If these conditions hold, the BoC expects gross domestic product (GDP) growth to accelerate slightly, revising its 2026 growth forecast upward to 1.2% from the 1.1% predicted in January [4][6][8]. Growth is then projected to reach 1.6% in 2027 and 1.7% in 2028 [4]. Under this scenario, inflation is expected to return to the 2% target by early 2027 [4][8].

Sources

Interest rates Monetary policy