The Bank of Canada kept its benchmark interest rate steady at 2.25% on Wednesday, citing heightened global economic risks from the ongoing war in Iran. With oil prices spiking due to disruptions in the Strait of Hormuz—a critical chokepoint for roughly 20% of the world’s oil supply—the central bank warned of near-term inflationary pressures.
The conflict has already driven sharp increases in global oil and natural gas prices, a trend the Bank of Canada expects to push inflation higher in the coming months. Beyond energy, potential bottlenecks in the Strait could disrupt supplies of other key commodities like fertilizer, further straining global trade networks. The bank emphasized that the duration and severity of the conflict will be critical in determining the broader economic fallout.
This decision marks the third consecutive rate hold since a 0.25-percentage-point cut in October 2025, reflecting a cautious stance amid layered uncertainties. The central bank is also keeping a close eye on U.S. tariff and trade policy developments, alongside the Middle East crisis, as it gauges their combined impact on Canadian growth and price stability.
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Governor Tiff Macklem is set to provide further insight during a press conference at 10:30 a.m. EST, where he will field questions on the bank’s outlook and potential policy responses. The bank reiterated its commitment to maintaining confidence in price stability through this period of global upheaval.
As the second rate announcement of 2026, the hold signals a wait-and-see approach while energy markets remain volatile. Oil price shocks have already prompted fuel rationing in some countries, amplifying concerns about cost-of-living pressures. The central bank’s next steps will hinge on how these disruptions evolve, with inflation risks now tied directly to a conflict that shows no immediate resolution.
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