As markets had overwhelmingly anticipated, the Bank of Canada left its policy settings on hold this morning, and expressed concern over persistent weakness in the Canadian economy, suggesting that policymakers are more concerned about downside risks to growth than upside risks to inflation as the world economy faces yet another supply shock.

Officials led by Governor Tiff Macklem maintained the policy rate at 2.25 percent for a third consecutive meeting after delivering nine cuts between June 2024 and September 2025.

In the official statement setting out the decision, policymakers warned “With recent data pointing to weaker economic activity and uncertainty elevated, risks to growth look tilted to the downside. At the same time, inflation risks have gone up due to higher energy prices”. The Bank still expects the “Canadian economy to grow modestly as it adjusts to US tariffs and trade policy uncertainty, but recent data suggest that near-term economic growth will be weaker than anticipated in January”.

From a broader standpoint, officials said “Since the outbreak of the conflict in the Middle East, global oil and natural gas prices have risen sharply, and this will boost global inflation in the near-term. In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities, such as fertilizer. Financial conditions have tightened from accommodative levels”.

In remarks prepared ahead of the post-decision press conference, Governor Tiff Macklem said it’s “too early to assess the impact of the war on growth in Canada,” yet downplayed the positive terms-of-trade shock from the war, saying higher oil prices would “boost income from energy exports,” but “squeeze consumers, leaving them with less income for other spending”. With the economy in excess supply, “The risk that higher energy prices quickly spread to the prices of other goods and services looks contained,” he said, meaning “Governing Council will look through the war’s immediate impact on inflation,” although “if energy prices stay high, we will not let their effects broaden and become persistent”.

The Canadian dollar is trading very slightly firmer as we go to print, suggesting that traders were well-positioned for the somewhat-dovish guidance delivered by policymakers. Market views could change when Macklem and Deputy Governor Rogers answer questions in the next half hour, but for now, it looks as if the Bank of Canada remains focused on signs of persistent economic slack and is prepared to follow long-standing practice in downplaying changes in commodity prices as it sets policy. Against that relatively-neutral backdrop, the Canadian dollar looks set to mark time in the coming hours, before the Federal Reserve decision resets global currency markets this afternoon.