MNI BoC Preview-Mar 2026: Oil Shock Meets Soft Data

Hidden PDF

EXECUTIVE SUMMARY:

• The Bank of Canada is overwhelmingly expected by both markets and analysts to maintain its overnight rate for a 3rd consecutive decision at 2.25% at the March meeting (announcement on Mar 18).
• The main point of interest for the meeting communications is how Governing Council views the risks to the economic outlook posed by the war in the Middle East that has broken out since the prior meeting in January.
• Domestic economic developments would have appeared to argue – if anything - for further easing, and indeed as of February 27 (even before the soft February data releases) there were about 8bp of cuts priced in OIS by the end of 2026, vs 8bp of hikes a month earlier.
• But the conflict in Iran sharply increased expectations of hikes: on the eve of the March rate announcement there are currently ~33bp in 2026 hikes priced, down slightly from the 40bp seen late last week (with February’s soft CPI and jobs reports helping tame the case for hikes). There are no longer any analysts who expect the BOC to cut rates this year, though most see hikes starting only in 2027.
• As with other major economies, the spike in energy prices in March is inevitably going to push up headline CPI and spread into core prices, with a negative impact on consumers. Unlike other major economies, however Canada’s status as an energy exporter means the growth impact is seen as positive on net, due in large part to better terms of trade, which adds an additional complication for the BOC’s assessment of the economic trajectory.
• Given the fluid situation in the Mideast, the BOC's “wait and see” approach, with an expression of optionality to move rates in either direction, is likely to persist.
• MNI’s Instant Answers looks for any clearer signs on rate intentions, including whether the Bank signals it is prepared to lower, raise, or hold rates in future.