The Bank of Canada kept its main interest rate at 2.25 percent Wednesday, leaving policy on hold while it waits to see whether an energy-driven inflation jump fades. It was the fourth straight rate hold since a 0.25-percentage-point cut in October 2025.
Governor Tiff Macklem’s problem is that the bank’s forecast leans on two fragile assumptions: inflation peaks around 3 percent in April, and crude oil falls to about $75 a barrel by mid-2027. Brent crude was near US$109 per barrel Wednesday after Iran blockaded the Strait of Hormuz, a waterway that accounts for 20 percent of global oil supply.
- Canada’s inflation rate rose to 2.4 percent in March from 1.8 percent in February, led largely by fuel costs.
- Excluding gasoline, inflation slowed to 2.2 percent in March from 2.4 percent in February.
- Store-bought food prices rose 4.4 percent in March, with fresh vegetables up 7.8 percent.
The domestic economy is giving the bank another reason to wait. In its quarterly monetary policy report, the central bank now expects housing to subtract 0.1 percentage points from 2026 GDP growth, a downgrade from January, when it expected housing to add 0.2 points. March home sales were 20 percent below the 10-year average and the weakest for that month since the 2009 global financial crisis.
The weak spot is not just resale demand. Toronto preconstruction sales are at their lowest level in more than three decades, and developers in the Toronto and Hamilton region had a record 4,295 newly completed condo units unsold in the first quarter. The bank said a “substantial inventory overhang” of small condos in major centres will restrain new construction, even after Ontario and Ottawa announced HST rebates on newly built homes.
Macklem can hold rates steady only if the forecast holds together. The Bank of Canada’s outlook assumes no change in U.S. tariffs on Canadian goods, while the bank has warned that persistently high oil prices could force it to raise the benchmark rate, making variable-rate mortgages more expensive and lifting funding costs for fixed-rate loans.
