Key Interest Rate Remains at 2.25%, for Now!
Ottawa, March 18, 2026: The Bank of Canada (BOC) has decided to maintain its key interest rate at 2.25 percent, as announced today. For BOC Governor Tiff Macklem, this decision reflects the delicate balancing act he often faces: controlling inflation while managing the risks posed by external factors like wars and tariffs, as well as the health of the Canadian economy.
Shortly after the announcement, Macklem cautioned that while current conditions do not necessitate a rate hike, a prolonged conflict in the Middle East could affect gasoline prices and, consequently, inflation. “If oil prices remain high for an extended period, the income from our oil exports will increase,” he explained. However, higher oil prices will strain households and businesses, as they will spend more on energy and less on other goods, which could harm overall consumption.
Both Macklem and Senior Deputy Governor Carolyn Rogers noted that while Canada is somewhat shielded from the closure of the Strait of Hormuz, other critical commodities, including fertilizers, also traverse that route. Canadian farmers are already experiencing the negative effects of rising prices due to this supply crunch.
Depending on the duration of the conflict, elevated energy prices and higher fertilizer costs may also drive up grocery prices, as “we import a lot of our fresh food,” Rogers added.
“It is too early to assess the war’s impact on growth in Canada,” Macklem said to reporters, adding that, for now, the risk of higher energy costs affecting broader prices remains contained. “Canada’s economy is facing numerous challenges, and now we must contend with more volatility.”
When asked whether rising energy prices would have a net positive or negative effect on Canada’s economy, Macklem indicated that the consequences would be complex and depend largely on how long the conflict persists. “The Governing Council will consider the immediate impacts of the war on inflation, but if energy prices remain elevated, we will not allow their effects to create persistent inflation,” he stated.
Explaining his recent decision, Macklem said it was a difficult choice: “Raising interest rates to curb inflation could further weaken the economy, whereas lowering rates to stimulate growth risks pushing inflation well above target levels.”
He noted that near-term growth is likely to be weaker than the bank had projected in January and described the current environment of uncertainty as acute.
In response to the interest rate announcement, industry experts, such as Royce Mendes of Desjardins, remarked that “the tone of (Macklem’s) communications reassures us that the Bank of Canada is prepared to overlook the impacts of higher energy prices on the Consumer Price Index (CPI) as long as the conflict does not prolong. We expect officials to keep the policy rate unchanged for the rest of this year.”
Following the announcement, the Canadian dollar weakened, slipping 0.20% to C$1.3717, or 72.90 U.S. cents.
The next decision regarding the BOC interest rate is scheduled for April 29, 2026.
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