Canada: Bank of Canada holds rates in March
Latest bank decision: At its meeting on 18 March, the Bank of Canada held the target for the overnight rate at 2.25%, following 100 basis points of cuts last year.
Bank opts for wait-and-see approach: The Bank likely wanted to judge the effect of the 275 basis points of interest rate cuts since mid-2024 before countenancing any further rate changes. Elevated international uncertainty linked to conflict in the Middle East was another reason to stay on hold. A combination of an economy that is expected to keep growing plus inflation well within the Bank’s 1.0–3.0% target range gave the Bank the leeway to stay put.
Monetary policy likely to be unchanged ahead: Our Consensus is for rates to stay on hold from now to end-2026, though one panelist sees a cut and a few see hikes. Much will depend on future changes in U.S. trade policy and their impact on Canadian GDP and inflation, as well as how conflict in the Middle East affects energy prices ahead.
Panelist insight: On the outlook, Desjardins economists said:
“Governor Macklem put the Bank of Canada’s challenge best: Economic weakness combined with rising inflation is a dilemma for central banks. Given all this uncertainty, it came as no surprise that the Bank kept rates on hold at its March meeting. And the tone of the communications tilted slightly dovish. As a result, we continue to expect officials will leave the policy rate unchanged for the duration of this year.”