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March 18, 2026BANK OF CANADA MONETARY POLICY The Bank of Canada maintained its target for the overnight rate at 2.25%, with the Bank rate at 2.50% and the deposit rate at 2.20%.
The conflict in the Middle East has contributed to greater volatility in global energy prices and financial markets, increasing risks to the world economy. The duration of the war and its economic impacts remain highly uncertain. Since the conflict began, global oil and natural gas prices have risen sharply, adding near-term pressure on global inflation. The effective closure of the Strait of Hormuz is creating transport bottlenecks that could restrict other key commodities, including fertilizer. Financial conditions have also tightened, with bond yields up, equity prices down, and wider credit spreads.
After strong expansion in the third quarter of 2025, Canada’s GDP contracted by 0.6% in the fourth quarter. Domestic demand rose by over 2%, driven by strong consumer and government spending, despite continued weakness in housing. The Bank of Canada anticipates that near-term economic growth will be weaker than projected in the January Monetary Policy Report; however, as the Canadian economy adjusts to U.S. tariffs and ongoing trade policy uncertainty, growth is expected to resume at a modest pace.
Employment gains in the fourth quarter of 2025 were largely reversed in the first two months of 2026, and the unemployment rate rose to 6.7% in February.
CPI inflation eased further to 1.8% in February, down from 2.3% in January. Food inflation slowed in February but remains elevated. The sharp rise in global energy prices has increased gasoline costs, which will add upward pressure to total inflation in the coming months.
The Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment and the conflict in the Middle East. If the outlook changes, they are prepared to respond and will be assessing incoming data carefully relative to the Bank’s forecast.
The next scheduled date for announcing the overnight rate target is April 29, 2026. The Bank’s next Monetary Policy Report will be released at the same time.
Source: Monetary Policy press release; Monetary Policy press conference
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