Experts back a steady hand on rates even as energy and trade risks mount
The Bank of Canada looks set to keep its policy rate parked at 2.25% through the rest of 2026, leaving mortgage borrowers in a prolonged holding pattern while it watches how an oil shock and trade uncertainty play out.
A new Reuters poll of economists suggests the central bank will tolerate somewhat higher inflation in the near term rather than risk choking off a fragile expansion.
Financial markets have priced in a possible late‑year hike, but most forecasters judged that only a sustained surge in energy‑driven inflation would justify tighter policy.
With growth already soft and the labour market loosening, they argued, the bar for another increase remains high.
Economists see little case for near‑term hike
All 41 economists in the April 21‑24 survey expect the Bank to leave its overnight rate unchanged at its April 29 decision, and more than 80% forecast no move at all this year.
“Because of softening core inflation, it does give the Bank of Canada a lot more room to be flexible and patient,” said Claire Fan, senior economist at RBC.
“They can wait for actual concrete signs of risk of inflation climbing higher, broadening and persisting...as opposed to rushing to make a decision.”
Headline inflation in March stood at 2.4%, comfortably inside the Bank’s 1%–3% control range. In a recent interview, governor Tiff Macklem played down the latest energy‑driven uptick, saying the Bank is “not even that worried if we see near‑term inflation expectations go up” so long as longer‑term expectations stay anchored near the 2% target.
Bank of Canada governor Tiff Macklem signalled he is prepared to look through a fresh burst of inflation in the months ahead, even as the war in Iran pushed energy prices higher and unsettled borrowers facing renewal.https://t.co/ptOwbexWBb
— Canadian Mortgage Professional Magazine (@CMPmagazine) April 20, 2026
Broader forecasts in the poll showed inflation averaging just under 3% over the next two quarters, about half a percentage point higher than economists projected in January.
A significant minority, or 14 of 34 respondents, nonetheless predicted at least one rate increase by the end of March next year.
Similarly, CPA Canada’s chief economist, David‑Alexandre Brassard, said the case for another hike remains weak.
“There is little in the latest data to suggest that the Bank of Canada needs to act preemptively on interest rates to constrain inflation,” he said.
“With core inflation continuing to ease and demand softening, the current policy rate seems restrictive.”
Energy shock tests BoC’s resolve
In March, the Bank held its rate at 2.25% but said it is prepared to raise borrowing costs if elevated energy prices threaten to entrench inflation.
Canada’s status as a net energy exporter gave some cushion against the hit to consumers, but mortgage professionals faced the prospect that any further spike at the pumps could spill into funding costs.
In December, Macklem described the 2.25% policy rate as “about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment” and stressed he was “not going to put our policy on a timeline.”
Trade clouds linger over medium‑term outlook
The poll highlighted trade as the other looming threat. With the US‑Mexico‑Canada Agreement (USMCA) heading into renegotiation this summer, economists warned that a bumpy process could sap export demand just as higher energy prices squeeze households.
“After energy prices settle down the focus is going to turn entirely to...where the USMCA is headed. And frankly, I'm a bit concerned on that front. I am concerned trade is going to continue to be a drag on the Canadian economy,” said Douglas Porter, chief economist at BMO Capital Markets.
Poll respondents expect Canadian GDP growth to slow from 1.7% in 2025 to 1.2% in 2026, a downshift Porter described as an “unfortunate combination” with firmer inflation but not yet stagflation.
The 2026 jobless rate was forecast at 6.6%, only slightly lower than January’s 6.7% projection.
“We expected the labour market improvement to be very choppy,” said Fan, pointing to sectors tied to US demand.
“As domestic demand picks up later this year, it's going to continue to support that improvement, balancing the trade weakness.”
Meanwhile, the Canadian Federation of Independent Business (CFIB) estimated that real GDP grew 1.6% in the first quarter of 2026. It expects growth to continue at the same pace in the second quarter. Q2 inflation is projected to track at around 2.9%.
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