OTTAWA \u2014 The Bank of Canada held its principal interest rate at 2.25 per cent Wednesday, but warned rising oil and natural prices caused by the war in Iran will push up inflation in the short term.<\/p>\n
In its latest monetary policy decision, Canada\u2019s top bankers painted a picture of a weaker-than-expected economy that is facing new levels of uncertainty because of the war. <\/p>\n
\u201cCanada\u2019s economy is dealing with a lot. And now, we face more volatility,\u201d Bank of Canada Governor Tiff Macklem said in his opening remarks at Wednesday\u2019s rate announcement.<\/p>\n
Data released by Statistics Canada this week shows inflation dropped to 1.8 per cent in February from 2.3 per cent in January. Both reports represent data largely collected before the U.S.-Israeli strikes. The March CPI data, Macklem said, will be higher. <\/p>\n
But how big the war\u2019s impact will be, the bank says, depends on how high oil prices go and how long the conflict lasts. <\/p>\n
\u201cInflation in Canada has been close to the two per cent target for more than a year,\u201d Macklem said. \u201cBut, as we\u2019ve seen, the war in Iran is causing oil prices to move sharply higher and this will push up inflation in the short term.\u201d<\/p>\n
Despite that warning, central bankers are holding the policy interest rate for the third consecutive time. It was lowered in October from 2.5 per cent. Macklem says the bank does not believe it will see goods and services rapidly increase because of higher oil prices. That, he says, gives bankers time to monitor the economy as a whole. <\/p>\n
\u201cAs those risks evolve, as the economy plays out, we are prepared to respond as needed,\u201d Macklem said, adding the bank can change the policy rate depending on how much support the economy needs. <\/p>\n
The Bank of Canada will make its next interest rate decision on April 29. It will release the latest Monetary Policy Report, which provides a more detailed economic outlook for Canada, at the same time.<\/p>\n
\u201cWe can\u2019t fix the war,\u201d said Macklem. \u201cWhat we can do, though, and what we will do, is we will ensure that if energy prices stay high that it does not become ongoing, generalized, persistent inflation.\u201d<\/p>\n
How does the economy look?<\/p>\n
After growing 2.4 per cent in the third quarter of last year, GDP shrank by 0.6 per cent in the fourth quarter. Early data from 2026 suggests the economy is expanding again, but at a slower pace than the bank forecast in its January Monetary Policy report. <\/p>\n
The bank\u2019s January monetary policy report assumed oil would be US$60 a barrel for the projected horizon; it is now hovering around $100 a barrel. <\/p>\n