A Reuters poll of 41 economists showed a unanimous consensus that the Bank of Canada (BoC) will keep interest rates at 2.25% at its April 29 meeting. More than 80% of respondents predicted that the rate would remain unchanged throughout 2026. The decision was driven by declining core inflation. This indirectly gives the BoC room to be more flexible and patient in monitoring the impact of the Middle East war.
Despite the surge in crude oil prices due to the Iran conflict, Canadian inflation in March remained stable at 2.4%. Governor Tiff Macklem stressed that the central bank does not need to rush to respond to short-term energy price shocks. Canada’s status as a net oil exporter has been a key factor in helping the country’s economy withstand more severe global inflationary pressures.
However, the inflation forecast has been revised up to an average of 2.9% for the current quarter, about 50 basis points higher than the January forecast. This has led a small number of economists (14 out of 34) to expect at least one rate hike by March 2027. The BoC is now in a “wait and see” position to ensure that inflation risks are truly sustainable before tightening monetary policy.
In addition to energy issues, the future of trade is a major concern. Renegotiations of the USMCA agreement with the US and Mexico are scheduled for this summer. Despite concerns about a failure to reach a conclusion before the July 1 deadline, Canada’s chief negotiator is confident that the deal will not collapse. Economists warn that trade uncertainty could be a continuing burden on Canadian economic growth.
Canada’s GDP is forecast to grow by just 1.2% in 2026, down from 1.7% the previous year. While the combination of weak growth and rising inflation is causing concern, economists say Canada has not yet entered a full-blown “stagflation” phase. The unemployment rate is projected at 6.6%, reflecting a challenging labor market but is expected to recover as domestic demand picks up later this year.
