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The Bank of Canada held its policy rate unchanged at 2.25%, where it has stood since October, citing no change in its growth forecast despite global shocks. While higher oil prices are shifting the composition of growth, their overall impact remains limited.
The Bank forecasts GDP growth of 1.2% in 2026 and 1.6% in 2027, with inflation expected return to target as oil prices fall. Its neutral rate forecast stands at 2.25%-3.25%, while potential GDP was revised slightly higher, supported by past data revisions and expected gains from AI adoption.
Inflation is projected to peak around 3% in April before falling back to the 2% target early next year. Although fuel and food costs have raised near-term inflation expectations, the Bank sees no evidence of broader price spillovers, with long-term expectations still well anchored.
The Governing Council signaled that present policy settings are appropriate as oil prices decline and tariffs stay constant. However, it flagged dangers on both sides—further US trade restrictions could necessitate rate cuts, whilst persistently high oil prices could feed broader inflation and necessitate future rate hikes.
