Ottawa: The Bank of Canada has announced that it will maintain its policy rate at 2.25%, amidst ongoing global economic issues related to the Iran conflict and US trade policy. The decision was made amidst concerns that rising energy prices could contribute to higher inflation.
According to Anadolu Agency, the bank's decision to keep the overnight rate at 2.25%, along with a bank rate of 2.5% and a deposit rate of 2.20%, comes as uncertainty looms due to the evolving conflict in the Middle East. These geopolitical tensions, along with the US trade policy, are impacting global trade patterns and economic stability.
The ongoing conflict in Iran has resulted in increased energy prices and disruptions in transportation, influencing growth prospects negatively for oil-importing countries and pushing inflation rates upward globally. Financial markets have experienced volatility, influenced by daily developments in the Middle East and changing expectations around inflation and interest rates.
The Bank of Canada forecasts a global economic growth rate of approximately 3% for the years 2026 to 2028. However, inflation projections for the upcoming year have been adjusted due to rising energy costs. Within Canada, the growth outlook remains consistent with earlier projections, with GDP expected to grow by 1.2% in 2026, 1.6% in 2027, and 1.7% in 2028.
Domestic economic activity is being supported by consumer and government spending, although exports and business investment are being hindered by tariffs and trade uncertainties. The consumer price index inflation rose to 2.4% in March, driven by higher gasoline prices, and is anticipated to increase to around 3% in April. The bank predicts that inflation will return to its 2% target early next year, contingent upon a decrease in oil prices.
The Bank of Canada emphasized that while it is monitoring the impact of the Middle East conflict on inflation, it remains vigilant against allowing higher energy prices to lead to persistent inflation, indicating readiness to take necessary actions if required.