Key Takeaways:
- Canada’s central bank is keeping its interest rate firm at 2.25%
- At its March 18 announcement, the Bank of Canada (BoC) said "the war in the Middle East has increased volatility in global energy prices and financial markets, and heightened the risks to the global economy"
- TD Economist Maria Solovieva said the markets predict the BoC could hike its rate at some point this year amid a backdrop of global economic uncertainty
The Bank of Canada (BoC) announced it is holding its interest rate steady at 2.25%.
The March 18 decision is the second rate hold of 2026 as the BoC also held its rate in January.
TD Economist Maria Solovieva said that inflation is currently within the BoC’s target of 1-3%, and while GDP growth is muted, it’s still within a reasonable range. Even with tariffs, the economy is still chugging along for now.
“When inflation is close to the central bank's target, there is no strong reason to change course,” Solovieva said. “GDP growth is below target, but it’s not enough for the BoC to move its interest rate, either.”
In its rate announcement, the BoC said:
"With recent data pointing to weaker economic activity and uncertainty elevated, risks to growth look tilted to the downside. At the same time, inflation risks have gone up due to higher energy prices. We will continue to assess the impact of US tariffs and trade policy uncertainty, and how the Canadian economy is adjusting.
We are also monitoring the unfolding conflict in the Middle East closely and assessing its impact on growth and inflation. As the outlook evolves, we stand ready to respond as needed. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval."
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.
So, if the BoC cuts its interest rate, banks typically follow, and lower their interest rate on variable rate products, too. If the BoC hikes its interest rate, customers typically see higher interest rates on variable rate mortgages.
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 based on the bond market, not directly on the BoC’s interest rate. Banks typically use the Government of Canada bond yield as a benchmark for fixed rate mortgage pricing.
Will there be an interest rate hike this year?
With a war in the Middle East, rising oil prices, and supply chain disruptions, markets are predicting a rate hike by the end of the year, Solovieva said. However, a hike would require evidence of persistent, broadening inflation pressure, as well as signs that consumers are beginning to expect higher inflation to stick.
With so many unknowns, the BoC will be monitoring the health of the economy closely and assessing its monetary policy as things evolve.
“The central bank is going to stay patient, but vigilant,” Solovieva said.