Bank of Canada Holds Policy Rate!
Bank of Canada Holds Policy Rate!
Date Posted: March 18, 2026
Bank of Canada Holds Overnight Rate at 2.25%
Inflation Near Target as Global Energy Risks Rise
March 18, 2026 — Ottawa, ON
The Bank of Canada announced today that it is holding its target for the overnight rate at 2.25%, keeping the Bank Rate at 2.5% and the deposit rate at 2.20%. The decision reflects a delicate balance between easing domestic inflation and rising global risks tied to escalating geopolitical conflict in the Middle East.
While inflation in Canada has cooled closer to the Bank’s 2% target, heightened uncertainty surrounding global energy markets, trade policy, and financial conditions led policymakers to maintain their current stance.
The Governing Council emphasized that uncertainty has increased, particularly as surging oil and natural gas prices threaten to reverse recent progress on inflation. The Bank reiterated that it stands ready to respond should inflation pressures become persistent or economic weakness deepen.
Global Outlook: Energy Shock Raises the Stakes
Prior to the outbreak of conflict in the Middle East, global economic growth was tracking near 3%, broadly in line with the Bank’s January Monetary Policy Report. That outlook has since become more fragile as energy prices rise and financial conditions tighten.
United States:
Economic growth has moderated but remains solid, supported by household consumption and continued AI‑related capital investment. U.S. inflation remains above target and has evolved largely as expected, though higher energy prices pose an upside risk.
Euro Area:
Growth continues to be supported by domestic demand, even as exports soften.
China:
Export strength is sustaining growth, but domestic demand remains weak.
Since late February, oil and natural gas prices have risen sharply, lifting near‑term global inflation expectations. Transportation disruptions—particularly related to instability around the Strait of Hormuz—have also raised concerns about broader commodity supply chains, including fertilizers.
Financial conditions have tightened globally: bond yields have risen, equity markets have pulled back, and credit spreads have widened. The Canadian dollar has remained relatively stable against the U.S. dollar through this volatility.
Canadian Economy: Weaker Momentum, Softer Labour Market
Canada’s economy entered 2026 with less momentum than previously expected.
After expanding at an annualized pace of 2.4% in Q3, real GDP contracted by 0.6% in Q4, primarily due to a larger‑than‑anticipated drawdown in inventories. Despite this, domestic demand grew by more than 2%, supported by consumer and government spending, even as housing activity remained subdued.
Recent data suggest near‑term growth will be weaker than anticipated in January:
• Employment gains from late 2025 were largely reversed in early 2026
• The unemployment rate rose to 6.7% in February
• Export performance continues to show underlying weakness amid ongoing U.S. tariff uncertainty
The Bank continues to expect modest growth as the economy adjusts to trade disruptions, but acknowledged that risks to growth are now tilted to the downside. It is too early, however, to fully assess the impact of the Middle East conflict on Canada’s economic trajectory.
Inflation: Below Target, but Energy Risks Building
Inflation has continued to ease:
• Headline CPI slowed to 1.8% in February, down from 2.3% in January
• CPI excluding indirect taxes and the Bank’s preferred core measures are now close to 2%
Food inflation has moderated but remains elevated. Looking ahead, the Bank expects higher gasoline and energy prices to push headline inflation temporarily higher in coming months. Governing Council emphasized it will “look through” short‑term energy volatility—but will act if price pressures broaden or become persistent.
Housing and Mortgage Market Implications
For homeowners, buyers, and mortgage professionals, today’s rate decision reinforces near‑term stability—while underscoring longer‑term uncertainty.
1. Variable‑Rate Mortgages
With the policy rate unchanged, variable‑rate mortgage payments and HELOC rates tied to prime will remain stable for now. This offers continued relief for borrowers navigating a softer labour market.
2. Fixed Mortgage Rates
Fixed mortgage rates remain driven by bond markets, which have become more volatile as global yields rise. While inflation progress supports longer‑term rate stability, higher energy prices and geopolitical risk may limit further declines in fixed rates in the near term.
3. Housing Market Confidence
Cooling inflation and rate stability may help prevent further erosion in housing demand. However, weaker employment conditions, slower population growth, and global uncertainty suggest any housing recovery is likely to remain gradual rather than rapid.
Looking Ahead
The Bank of Canada emphasized that policy is in a holding pattern—not on autopilot.
With inflation near target but upside risks rising from energy prices, and growth showing signs of strain, the Governing Council faces a complex path forward. The Bank reiterated its commitment to price stability while closely monitoring:
• Global energy markets
• The evolution of geopolitical conflict
• Labour market conditions
• Trade policy uncertainty
For now, today’s announcement delivers a familiar message to Canadians: interest rate stability continues—but the margin for error has narrowed.