The Bank of Canada announced on Mar. 18 that it will keep its policy interest rate unchanged at 2.25 percent, citing ongoing economic uncertainty related to US trade policy and the recent outbreak of war in Iran.
This decision comes as the Canadian economy faces new challenges, including volatility in oil prices and concerns about inflation. The Bank said it aims to support economic activity while preventing a temporary rise in energy prices from leading to persistent inflation.
Governor Tiff Macklem said, “Today, Governing Council maintained the policy interest rate at 2.25%. We’ve held the policy rate at this level since October.” He added that “the Canadian economy continues to face heightened uncertainty related to US trade policy and geopolitical risks. Now the war in Iran has added a new layer of uncertainty. Its impact on the global and Canadian economies will depend on how long the conflict lasts and the extent to which it spreads across the Middle East.”
Recent data show that after growing by 2.4 percent in last year’s third quarter, Canada’s gross domestic product shrank by 0.6 percent in the fourth quarter, mainly due to inventory drawdowns rather than weak demand. Early data for 2026 suggest slow expansion, but job gains have reversed and unemployment rose to 6.7 percent in February.
Inflation eased further to 1.8 percent in February from 2.3 percent in January, with core measures close to target levels; however, higher global energy prices are expected to push up inflation temporarily.
Macklem addressed these risks: “Economic weakness combined with rising inflation is a dilemma for central banks… With inflation close to target and the economy in excess supply, the risk that higher energy prices quickly spread to the prices of other goods and services looks contained.” He also stated that if high energy prices persist due to ongoing conflict, “we will not let their effects broaden and become persistent inflation.” The Bank remains committed to ensuring Canadians’ confidence in price stability during this period.
The Bank of Canada strives to maintain price stability and foster economic growth by overseeing monetary policy and financial systems, according to the official website. Macklem has served as governor since his appointment on June 3, 2020 according to the official website. The institution also collaborates with university students through initiatives like the Governor’s Challenge for monetary policy simulations according to its official website.
Additionally, the Bank manages currency and digital payments while regulating retail payment systems as outlined on its official website, operating within Canada’s financial sector with a focus on monetary policy and economic oversight according to its official website.
Looking ahead, Macklem said that Governing Council will continue monitoring developments: “As the outlook evolves, we stand ready to respond as needed… And we are closely monitoring the unfolding conflict in the Middle East.”
