Bank of Canada holds at 2.25% as war in the Middle East lifts oil

The Bank of Canada held its target for the overnight rate at 2.25% on March 18, 2026, with the Bank Rate at 2.5% and the deposit rate at 2.20%. It was the third straight hold.

Canada: CPI inflation, year over year

What changed since January

• The war in the Middle East. Oil and natural gas prices rose sharply and financial conditions tightened. The Bank said it is too early to judge the impact on Canada.
• Weaker growth. GDP contracted 0.6% in the fourth quarter of 2025, mostly because of an inventory drawdown, and housing markets remained weak.
• Softer jobs. Unemployment rose to 6.7% in February.
• Lower inflation, for now. CPI inflation eased to 1.8% in February, but higher gasoline prices will push it up in the coming months.

The Bank described growth risks as tilted to the downside while inflation risks have gone up, and said it stands “ready to respond as needed.”

What it means in Calgary

Higher oil prices usually support Alberta’s economy, but higher inflation can keep interest rates from falling further. For buyers, the message was stability: variable-rate payments were unchanged. The next decision was scheduled for April 29.

Before and after the war

Before the conflict in the Middle East, the global economy was on pace to grow at around 3%, as the Bank expected in January. US growth had moderated but remained solid, the euro area was supported by domestic demand while exports contracted, and China relied on exports while domestic demand stayed weak. Since the war began, oil and natural gas prices have risen sharply. The Bank also warned that transportation bottlenecks from the effective closure of the Strait of Hormuz could affect the supply of other commodities, such as fertilizer.

Financial conditions tightened: global bond yields rose, equity prices fell and credit spreads widened. The Canada-US exchange rate stayed relatively stable.

Canada’s economy: weaker than it looks, stronger than it looks

The fourth-quarter contraction followed growth of 2.4% in the third quarter. The Bank said the drop was mainly due to a larger-than-expected drawdown in inventories; domestic demand actually grew by more than 2%, thanks to consumer and government spending. The labour market is soft: job gains from the fourth quarter were largely reversed in January and February, and exports remain weak.

Inflation: low now, higher soon

Inflation excluding changes in indirect taxes and the core measures were all close to 2%. Food inflation slowed but remains elevated. Higher gasoline prices will push total inflation up in the coming months. That leaves the Bank in a difficult spot: risks to growth are tilted to the downside, while inflation risks have risen.

What the Bank is watching

Governing Council said it will keep assessing the impact of US tariffs and trade policy uncertainty and how the Canadian economy is adjusting, and it is monitoring the conflict closely. It expects the economy to grow modestly, but recent data suggest near-term growth will be weaker than it anticipated in January. The Bank said it is too early to judge the war’s effect on growth in Canada. Its next decision, on April 29, comes with a full Monetary Policy Report and a new forecast.