The Bank of Canada has held its key interest rate at 2.25%, pointing to ongoing global uncertainty and a mixed domestic economic outlook.

Global factors—including the conflict in the Middle East and continued U.S. trade policy shifts—are driving volatility, pushing up energy prices, and adding pressure to inflation. In Canada, growth remains modest, with GDP projected at 1.2% in 2026, gradually rising in the years ahead. Consumer spending is holding up, but exports and business investment remain weak, largely due to tariffs and uncertainty.

But while interest rates were held, inflation concerns are growing as expectations for higher inflation increase.   The oil shock caused by the war with Iran is pushing energy prices up, and higher energy prices – if high long enough -- will then cascade through the economy as transportation, fertilizer, manufacturing and a host of other inputs get more expensive.  Inflation has increased to 2.4%, driven by higher gasoline prices, and is expected to rise to around 3% in the near term before easing back toward the Bank’s 2% target -- but that assumes an easing of energy prices.

What this means for business

• Rates remain stable for now, providing short-term predictability for borrowing and investment
• Cost pressures persist, particularly from fuel and transportation
• Business investment remains cautious amid ongoing uncertainty
• Labour pressures may ease slightly, but reflect broader economic softness

The Bank has signaled it will continue to monitor inflation and global developments closely and stands ready to act if conditions change, and the Bank seemed clear-eyed about upward pressure on inflation (and potentially rates, thereafter).