Bank of Canada Interest Rate Announcement – April 29, 2026

The Bank of Canada maintained its overnight policy rate at 2.25 per cent this morning. In the statement accompanying the decision, the Bank noted that although the Iran war has led to sharply higher oil prices, the outlook for Canadian economic growth is relatively unchanged, as higher prices for Canadian oil exports are offset by the impact of elevated gasoline prices on consumers. On inflation, the Bank expects CPI to breach 3 per cent in April before easing back to 2 per cent by 2027. While there are no signs yet of high energy prices feeding through to broader prices, the Bank is closely monitoring the persistence and magnitude of the pass-through from the oil shock to inflation and, while looking through the current impact, stands ready to act to keep prices stable.

The weak Canadian labour market and decelerating core inflation that currently characterize the economic environment would normally signal that the Bank of Canada should begin thinking about lowering its policy rate. The spike in oil prices, however, has complicated matters. A supply shock of this nature forces central bankers into an uncomfortable trade-off. Higher energy costs risk feeding into broader inflation expectations—an argument for vigilance—even as the underlying economy shows signs of fatigue. A large and persistent shock risks becoming embedded in expectations, as occurred during the pandemic-era supply disruptions. A temporary shock may not warrant a policy response. Yet the Bank’s credibility is not unscarred: its delayed response to rising inflation during COVID remains fresh in the public mind, a reminder that waiting too long can prove costlier than acting too soon.

The Bank’s communication this morning reflects the complexity of the current situation. While the Bank expects the impact of the Iran war to be temporary and limited, we could see more hawkish policy if that proves not to be the case.