The Bank of Canada kept its key interest rate at 2.25 per cent on Wednesday—a fifth consecutive hold—due to the elevated level of uncertainty around the direction of the domestic economy and the global financial implications of the war in the Middle East.
The dual external pressures of increased energy prices and newly proposed tariffs by the U.S. come as trilateral free-trade negotiations loom.
In Wednesday’s statement, the central bank said its governing council “is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation. As the outlook evolves, we stand ready to respond as needed.”
Meanwhile, Canadian economic growth is stalling—at best—and unemployment remains high. “Recent data suggests that growth will resume in the second quarter but, even with some rebound, the economy is expected to remain in excess supply,” the Bank of Canada said in its statement.
At this point, we think that the next possible move is a hike of 25 basis points at September’s Bank of Canada meeting should the energy shock prove durable alongside the absence of an agreement to fully bring a near-term end to hostilities in the Middle East.
Get Joe Brusuelas’s Market Minute economic commentary every morning. Subscribe now.
