The Bank of Canada maintains its interest rate policy to close out April

The Bank of Canada Maintains Its Interest Rate Policy to Close Out April

April 29, 2026

Despite rising oil prices and global trade friction, the Bank of Canada has once again chosen to keep its overnight policy interest rate at 2.25%. This decision is good news for those who feared the Bank would raise rates to combat recent oil-price-driven inflation, but it does lead to speculation about what comes next — and when.

To understand the Bank's thinking, here is a summary of its April 29, 2026 observations and outlook.

Canadian Economic Performance and Outlook

• After contracting in the fourth quarter of 2025, growth is forecast to have resumed in early 2026.
• Consumer and government spending are supporting economic activity, while tariffs and trade uncertainty are weighing on exports and business investment.
• The Bank's April forecast projects GDP growth of 1.2% in 2026, rising to 1.6% in 2027 and 1.7% in 2028, as growth in exports and business investment resumes along "a lower trajectory."
• The outlook for economic growth in Canada is little changed from the Bank's January Monetary Policy Report (MPR) projection.

Inflation

• Global inflation, measured by the Consumer Price Index (CPI), climbed to 2.4% in March due to sharply higher gasoline prices.
• The March increase follows several months of slowing inflation data.
• Core inflation has been easing and held steady at just above 2% in the most recent inflation report.
• The proportion of components that make up the "CPI basket" has also declined in recent months.

Canadian Housing and Employment

• Housing activity declined in the fourth quarter and is being held back by slow population growth, economic uncertainty, and ongoing affordability issues.
• The labour market is soft, with subdued employment growth over the past year and job losses in sectors targeted by US tariffs.
• The unemployment rate remains in the 6.5% to 7% range, reflecting both weak hiring and fewer job seekers.

Global Economic Commentary

• In the United States, growth is still expected to be solid over the Bank's projection horizon, boosted by AI-related investment and consumption growth.
• China's economy is being supported by robust exports.
• In the euro area, higher prices for oil and natural gas will weigh on economic activity.
• Overall, the global economy is expected to grow by about 3% in 2026, 2027, and 2028.
• The Bank's projections for inflation over the next year have been revised up because of the jump in energy prices.

Financial Conditions and Bond Yields

• Financial conditions have been volatile, reflecting daily developments in the Middle East and shifting market expectations for inflation and interest rates.
• Bond yields are modestly higher since January, while equity markets — which weakened sharply at the outset of the war — have recovered.
• Since the start of the war, the US dollar has appreciated against most major currencies.
• The Canada-US exchange rate has been relatively stable.

War in the Middle East and Shifting Trade Patterns

The Bank again made special mention of the evolving conflict in the Middle East, saying it is "causing heightened volatility." It further added that the Iran war has led to sharply higher energy prices and transportation disruptions, "diminishing growth prospects in oil-importing countries and boosting inflation worldwide."

It also noted that US trade policy continues to reshape global trade patterns. Both trade policy and the conflict in the Middle East are "ongoing sources of uncertainty."

The Bank's April outlook assumes tariffs remain unchanged and the global benchmark price of oil declines to US$75 per barrel by mid-2027.



Rationale for Today's Decision and Outlook

In commenting on its decision to hold its policy rate steady, the BoC made several key points:

• With GDP growing slightly above potential, the current excess supply in the economy will be gradually absorbed.
• While the war in Iran may alter its composition, overall GDP growth is little changed in the updated forecast. Since Canada is a large net exporter of oil, higher oil prices increase national income even as consumers are squeezed by higher gasoline prices.
• As expected, so far there is "little evidence" that oil prices have fed through more broadly to goods and services prices — but this warrants close attention in the months ahead.
• Near-term inflation expectations have moved up with higher gasoline prices and still-elevated food price inflation, but longer-term inflation expectations have remained "anchored."
• CPI inflation will likely rise further in April to about 3%. Based on the assumption that oil prices will ease, inflation is forecast to come down to the 2% target early next year and remain around 2% over the projection horizon.

The Bank offered that "against this backdrop," and taking into account its current projection, it decided to maintain its policy rate at 2.25%. The Bank further stated:

"We are closely monitoring the impact of the conflict in the Middle East and how the economy is responding to US tariffs and trade policy uncertainty. The Bank's Governing Council is 'looking through' the war's immediate impact on inflation but will not let higher energy prices become persistent inflation. As the outlook evolves, we stand ready to respond as needed."

Next Up

The Bank is scheduled to make its next policy interest rate announcement on June 10th. First National's executive summary will follow. In the meantime, please visit the Resources page of this website for other important insights.