The Bank of Canada kept its key interest rate at 2.25 per cent as expected on Wednesday and said any changes in the rate could be small if its projections for the economy held true.
Governor Tiff Macklem said the key rate is probably at about the right level if the economy follows the central bank’s projections, though he didn’t rule out future adjustments depending on how the risks play out.
“If the economy evolves broadly in line with the base case, changes in the policy rate can be expected to be small,” he said.
“However, uncertainty is unusually elevated and there are many possible outcomes. Monetary policy may need to be nimble.”
The bank said it is closely monitoring the impacts of the war in Iran — which has sent the price of energy way up — and trade policy uncertainty. For now, the bank is “looking through” the impact of sky-high oil prices on inflation, though if oil prices stay high for longer, rate hikes could be in order.
The bank said the overall effect in Canada of the war will be modest. High oil prices ​benefit Canada by increasing export revenues while squeezing businesses and consumers.
Inflation in April is expected to ⁠shoot up to about three per cent, ⁠from 2.4 per cent in March, while averaging around 2.3 per cent for this ‌year, but is expected to come back down to the bank’s two per cent target by early next year. The bank lifted its 2026 growth forecast to 1.2 per cent, from the 1.1 per cent it had predicted in January.