Key Takeaways:
- Canada’s central bank is keeping its interest rate firm at 2.25%
- At its April 29 announcement, the Bank of Canada (BoC) said the evolving conflict in the Middle East is causing heightened volatility and U.S. trade policy continues to reshape global trade patterns
- TD Economist Rishi Sondhi said the hold is not a surprise as the latest inflation data came in softer than expected
The Bank of Canada (BoC) announced it is yet again holding its interest rate steady at 2.25%.
The April 29 decision is the third rate hold of 2026 as the BoC also held its rate in January and March.
Despite inflation hitting 2.4% in March – up from 1.8% in February – the data came in “softer” than expected, TD Economist Rishi Sondhi said.
“Even though inflation accelerated on the back of a predictable surge in gasoline prices, it was actually a little bit softer than markets were expecting,” Sondhi said.
“With the economic fallout from the war still highly uncertain, it would be premature to pivot from a hold, particularly with core inflation still well behaved."
In its rate announcement, the BoC said: "We are closely monitoring the impact of the conflict in the Middle East and how the economy is responding to U.S. tariffs and trade policy uncertainty."
"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."
What a rate hold means for Canadians
The BoC's interest rate is used as a benchmark by financial institutions to set their own interest rates on products such as variable rate mortgages and other types of loans.
So, if the BoC cuts its interest rate, banks typically follow, and lower their interest rate on variable rate products, too. And if the central bank increases its interest rate, customers typically see higher interest rates on variable rate mortgages.
But when the BoC holds its rate steady, not much changes for Canadians with variable rate mortgages.
Fixed rate mortgages, on the other hand, are products that have pricing locked in for a specific period of time.
Rates for these mortgages are influenced by the bond market, not directly by the BoC’s interest rate. Banks typically use the Government of Canada bond yield as a guide for fixed rate mortgage pricing.
Will there be an interest rate hike this year?
In March, TD Economist Maria Solovieva told TD Stories that the markets were predicting an interest rate hike at some point this year. With a war in the Middle East and supply chain disruptions, the central bank may feel inclined to make an upward move – especially if inflation heats up, Solovieva said at the time.
While financial markets still expect the BoC to hike its interest rate later this year, many economists think a hold is the path the central bank will take.
TD Economics’ outlook is that the BoC will hold its interest rate for the duration of 2026, which is a prediction in line with many other economists, according to a Reuters poll.
Sondhi said that unless there’s sustained conflict in the Middle East that causes a bigger and/or a more sustained increase in energy and other commodity prices, a hike likely won’t happen.
“For a hike to potentially be on the table, those prices would then have to seep into the broader economy and influence core inflation trends,” he said. “That could change the calculus for the Bank of Canada and tilt risk more towards a hike. Indeed, Bank of Canada Governor Tiff Macklem acknowledged the same possibility during opening remarks at his press conference."
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