The Bank of Canada kept its key interest rate at 2.25% on Wednesday, holding steady as rising oil prices lift inflation and uncertainty around global trade continues.
Governor Tiff Macklem said the economy is growing again after a slowdown late last year, but higher gasoline and food prices are putting pressure on households. Inflation rose from 1.8% in February to 2.4% in March and could reach about 3% in April before easing next year if oil prices fall as expected.
The central bank expects the economy to grow 1.2% in 2026, followed by 1.6% in 2027 and 1.7% in 2028. Growth is supported by consumer and government spending, while exports and business investment remain affected by U.S. tariffs and ongoing trade uncertainty.
Macklem said the bank will not react to short-term swings in energy prices, but it will act if those increases begin to affect a wider range of goods and services. If inflation becomes more persistent, interest rates may need to rise, possibly through more than one increase.
At the same time, the bank signalled that rate cuts are still possible if trade tensions worsen and slow the economy further. Senior Deputy Governor Carolyn Rogers said oil prices are the main short-term concern for inflation, while trade policy remains the bigger risk over time.
The labour market remains soft, with unemployment between 6.5% and seven%. Macklem said that weakness, along with spare capacity in the economy, may limit how quickly businesses pass higher costs on to consumers.
The bank is also watching inflation expectations closely. Macklem noted that Canadians are paying close attention to fuel and food prices, especially after inflation rose above 8% during the pandemic recovery.
For now, the bank is holding its position. But it is clear that future decisions will depend on how oil prices, trade developments and inflation trends evolve.