Bank of Canada Seen Holding Rates Steady Amid Temporary Oil Shock

The Bank of Canada is widely expected to keep its key interest rate unchanged at 2.25% when it announces its policy decision on April 29, as economists view the recent oil price spike triggered by the Iran war as short-lived. While higher gasoline prices are likely to push inflation up in the near term, analysts say the impact is unlikely to persist long enough to alter inflation expectations or require immediate monetary action.

Canada’s annual inflation rate rose to 2.4% in March, driven largely by higher crude oil costs, but it remains within the central bank’s 1%–3% target range. At the same time, the broader economy has shown signs of weakness despite avoiding a recession feared due to U.S. tariffs. Policymakers, including Governor Tiff Macklem, have indicated limited concern over temporary inflation spikes, emphasizing that action would only be needed if price pressures become sustained and embedded in expectations.

Economists largely expect the central bank to hold rates steady through the year, even as money markets price in a possible hike later in 2026. The upcoming monetary policy report is likely to include upgraded forecasts for growth and inflation, but experts note that fiscal policy—not monetary tools—will play a larger role in addressing the economic impact of the oil shock. The Bank of Canada is expected to maintain a cautious stance, focusing on keeping wage growth aligned with its 2% inflation target and preventing longer-term inflation risks.

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