Bank of Canada Meeting

The Bank of Canada left its key interest rate at 2.25% Wednesday while replacing guidance about a hold with a hawkish comment about making sure higher energy prices triggered by the Iran war don't become stubborn inflation and noting the range of outcomes is wider because of risks of both slower growth and higher prices. Governor Tiff Macklem said the recent jump in oil prices will create a near-term boost to inflation, a risk that will grow the longer the war goes on. "Governing Council will look through the war's immediate impact on inflation but if energy prices stay high, we will not let their effects broaden and become persistent inflation" he said in a press conference opening statement. "As the outlook evolves, we stand ready to respond as needed," Macklem said. "Trade and geopolitical uncertainties remain, and the conflict in the Middle East has broadened the range of possible outcomes." Disruption to global oil supplies adds an upside inflation risk contrasting with the drag Canada faces from the biggest trade dispute with the U.S. since the 1930s, and officials say recent data suggests downside growth risks have escalated since their January forecast. While exports and incomes can see a boost from a sustained rise in oil and gas prices, Governing Council said their job is guarding price stability as the economy adjusts to global shocks. "Economic weakness combined with rising inflation is a dilemma for central banks. Raising interest rates to slow inflation could further weaken the economy. Easing interest rates to support growth risks pushing inflation well above target," Macklem said. Before the war core inflation had been slowing towards 2% and headline inflation was also close to target. Consumer prices advanced 1.8% in February from a year earlier. "With inflation close to target and the economy in excess supply, the risk that higher energy prices quickly spread to the prices of other goods and services looks contained. But the longer this conflict lasts and the wider it gets, the bigger the risks," Macklem said. The decision to hold rates was expected by all 20 economists in an MNI survey, but there was a split on the need for a hike or a cut later this year, while a recent rise in bond yields suggested investors saw an upward move. The Bank cut rates four times last year to what they called the bottom of the neutral range. The Bank's base case before the Middle East conflict was for growth of about 1% this year and inflation holding around its 2% target, and the dominant risk was U.S. trade talks and tariffs. Gasoline prices in Ottawa have jumped to more than CAD1.60 a liter in recent days from CAD1.20 before the conflict.

Download Full Report Here: https://media.marketnews.com/BOC_Review_Mar2026_64dbea8d5d.pdf EXECUTIVE SUMMARY - BOC Leans Dovish In Energy "Dilemma" * The Bank of Canada's March meeting came with the overwhelmingly expected rate hold (overnight rate at 2.25% for the 3rd consecutive meeting), as well as the anticipated focus on the new risks presented to the outlook from the conflict in the Middle East. * In our view, while the overall messaging on rates was largely neutral, the BOC's take on the impact of higher energy prices leans slightly dovish. The communications emphasized downside risks to growth, and Gov Macklem mused that without the energy price shock and associated inflationary pressures, the BOC might have been talking about cutting rates this year given weaker-than-expected growth and soft labour market data. In some ways that vindicated inter-market market pricing which ended February pricing in a slight easing bias through year-end on the back of softening data, but now prices in a hike by year-end. * The press conference emphasized that the BOC would take its time to assess the war's impact, and while it would look through near-term headline inflation increases, it would be looking carefully at core metrics to gauge whether there was an impact on broader price pressures. Macklem said "I don't think you measure this in weeks", but the current assessment is that "the risk that higher energy prices are going to quickly spread to other goods and services looks contained" due in part to excess supply in the economy. * Markets took the meeting fairly neutrally, with a slight dovish move in the June and July meeting-dated OIS implied rates, though volatility was more attributable to actual developments in the Middle East/energy prices on the day than to the BOC itself. At the conclusion of the press conference there were around 28bp of hikes priced through 2026, vs around 30bp prior to the decision, with a 25bp hike seen roughly by the October meeting. See PDF report for: * MNI View * MNI Instant Answers * Press Conference Transcript * BOC Meeting Links * Policy Statement Changes