Bank of Canada Holds Rates
Cites Global Volatility
On March 18, 2026, the Bank of Canada announced that it is maintaining its target for the overnight rate at 2.25%. This decision was made by the Governing Council as the Canadian economy navigates a complex landscape of sluggish domestic growth and heightened global risks.
Here are the key points from the Bank’s announcement:
Interest Rates Remain Steady: The overnight rate remains at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. The Bank chose to maintain these rates due to weaker economic activity and elevated uncertainty.
Global Conflict Driving Up Costs: The ongoing war in the Middle East has created significant volatility in financial markets and caused a sharp rise in global oil and natural gas prices. Additionally, transportation bottlenecks resulting from the effective closure of the Strait of Hormuz threaten the supply of other commodities, such as fertilizer. These factors are expected to boost global inflation in the near term.
Domestic Economic Slowdown: Canada’s economy contracted by 0.6% in the fourth quarter of 2025, largely driven by a significant drawdown in inventories. The labor market remains soft, with employment gains reversing in early 2026 and the unemployment rate climbing to 6.7% in February. The economy is also struggling with ongoing weakness in exports as it adjusts to US tariffs and trade policy uncertainty.
Mixed Inflation Outlook: Canada’s Consumer Price Index (CPI) inflation eased to 1.8% in February 2026, down from 2.3% in January. Core inflation measures and inflation excluding indirect taxes are currently hovering close to the Bank’s 2% target. However, the sharp increase in global energy prices is currently driving up gasoline prices, which the Bank anticipates will push total inflation higher in the coming months.
Looking ahead, the Bank of Canada notes that risks to economic growth are tilted to the downside, while inflation risks have increased due to energy prices. The Bank is closely monitoring the impacts of the Middle East conflict and US trade policies, emphasizing its commitment to maintaining price stability and readiness to respond as needed. The next scheduled date for a policy rate announcement is April 29, 2026.