- Randall Bartlett, Deputy Chief Economist • LJ Valencia, Economist
Essentials of Monetary Policy
The Bank of Canada Holds Rates Steady on Substantial Two-Sided Risk
April 29, 2026
According to the Bank of Canada (BoC)
- As expected, the Bank of Canada left its policy rate unchanged in April at 2.25%. The overnight rate remains at the lower bound of the Bank’s estimated range for the neutral rate.
- In his Monetary Policy Report (MPR) Press Conference Opening Statement External link., Bank of Canada Governor Tiff Macklem had three key messages.
- First, while Canada is being influenced by global shocks and geopolitical risks, the economy remains on a growth path and is projected to continue doing so. Indeed, the Bank’s outlook for the Canadian and global economies hasn’t change much since the January 2026 MPR External link.. According to the press release External link. that accompanied the interest rate announcement: “While the war in Iran may alter its composition, overall GDP growth is little changed in the updated forecast: Since Canada is a large net exporter of oil, higher oil prices increase national income even as consumers are squeezed by higher gasoline prices” (graph 1).
- Second, after more than a year of inflation close to target, inflation is edging up again due to higher global energy prices. Rising gas prices and stubbornly high food costs are squeezing Canadians. As such, unlike the Bank’s growth forecast, the inflation outlook changed substantially since January. Total CPI inflation is now expected to reach 2.3% in 2026, up from 2% in the January 2026 MPR (graph 2). This is directly the result of the Bank’s updated oil price outlook, which is now US$15 per barrel higher in 2027 than back in January, with the price of Brent crude expected to gradually decline from US$90 per barrel in Q2 2026 to US$75 per barrel in mid‑2027.
- Third, monetary policy aims to prevent higher energy prices from becoming a lasting source of inflation, while supporting the economy as it navigates global headwinds. The Governing Council’s focus remains on keeping inflation low and stable over time. Governor Macklem went so far as to spell out the policy actions that may be required under different outcomes: the policy rate may need to be cut to support economic growth if the US imposes significant trade restrictions on Canada; or the policy rate may need to be raised if higher energy prices become reflected through generalized persistent inflation.
Implications
It’s a tough time to be a central banker. Heightened uncertainty from both the evolving conflict in the Middle East External link. and US trade policy External link. mean the Canadian economy is being hit by simultaneous inflationary and disinflationary shocks. And looking ahead, the potential risks to both remain high and potential outcomes extremely uncertain.
Given the two-sided risks to the inflation outlook, the Bank of Canada appears comfortable leaving rates on hold, unless oil prices remain higher for longer. We remain of the view that the Bank of Canada will keep the policy rate unchanged for the rest of the year.
2026 Schedule of Central Bank Meetings
