BoC On Hold Amid Geopolitical Risk And Tepid Growth
- Iran conflict shifts focus from weak data to energy-driven risks - Inflation cools, but policymakers wary of oil-led upside pressures - Cautious tone expected as BoC keeps options open - Rate announcement due at 13:45 GMT/09:45 EST - Press conference scheduled for 14:30 GMT/10:30 EST
Bank of Canada policymakers are widely expected to keep policy on hold when they announce their decision on Wednesday.
As with several central banks meeting this week, heightened uncertainty stemming from developments in the Middle East has left rate setters inclined to await further clarity before signalling next steps.
Analysts expect the Governing Council to leave its overnight rate unchanged at 2.25%.
In more typical circumstances, Monday’s inflation report—alongside a run of softer data since the 28 January meeting—would likely have intensified speculation around the timing of the next rate cut.
However, the escalation of the Iran conflict and the resulting surge in energy prices have complicated the policy outlook.
National Bank of Canada’s Taylor Schleich said the statement is likely to acknowledge the conflict and the associated rise in commodity prices and market volatility. “As in March 2022, following Russia’s invasion of Ukraine, the Bank should highlight upside risks to global inflation and downside risks to global growth. However, we do not expect these risks to be explicitly incorporated into forward-looking monetary policy guidance.”
Statistics Canada reported that headline inflation cooled to 1.8% y/y in February, down 0.5 percentage points from the prior month. The deceleration was driven by declines in gasoline, natural gas, homeowners’ replacement costs, other owned accommodation expenses, and travel tours.
TD Securities said the report adds to an increasingly soft domestic backdrop heading into the March decision, noting that three-month annualised core inflation has fallen to a cycle low of 1.0%. “We do not expect softer inflation to weigh as heavily on the Bank’s deliberations given the risks posed by higher energy prices, but it should provide greater scope to look through these pressures in the near term.”
Macklem to signal data dependent stance
TD analysts added that it is too early for the Iranian conflict to have a material impact on the March decision, given uncertainty around its duration and implications for global energy supply.
JP Morgan’s Michael Hanson concurred. “In its communications this week, we expect the bank to stress the uncertainty as keeping policy makers on the sidelines as it closely watches the incoming data.” He added that Governor Tiff Macklem could highlight the intensification of two-sided risks for policy. However, the US investment bank did not expect the Governing Council to signal a material risk for shifting to a tighter policy stance unless there were signs that inflation expectations were rising uncomfortably.
“Otherwise, recent labour market weakness and downside risks from US geopolitical and trade policy actions should keep the possibility for some further easing in the pipeline—although, again, we don’t expect this idea to be stressed at this week’s press conference,” concluded the expert.
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- Iran conflict shifts focus from weak data to energy-driven risks
- Inflation cools, but policymakers wary of oil-led upside pressures
- Cautious tone expected as BoC keeps options open
- Rate announcement due at 13:45 GMT/09:45 EST
- Press conference scheduled for 14:30 GMT/10:30 EST
By Harry Daniels
LiveSquawk News
@HarryDaniels71
17 March 2026 | 18:30 GMT
Bank of Canada policymakers are widely expected to keep policy on hold when they announce their decision on Wednesday.
As with several central banks meeting this week, heightened uncertainty stemming from developments in the Middle East has left rate setters inclined to await further clarity before signalling next steps.
Analysts expect the Governing Council to leave its overnight rate unchanged at 2.25%.
In more typical circumstances, Monday’s inflation report—alongside a run of softer data since the 28 January meeting—would likely have intensified speculation around the timing of the next rate cut.
However, the escalation of the Iran conflict and the resulting surge in energy prices have complicated the policy outlook.
National Bank of Canada’s Taylor Schleich said the statement is likely to acknowledge the conflict and the associated rise in commodity prices and market volatility. “As in March 2022, following Russia’s invasion of Ukraine, the Bank should highlight upside risks to global inflation and downside risks to global growth. However, we do not expect these risks to be explicitly incorporated into forward-looking monetary policy guidance.”
Statistics Canada reported that headline inflation cooled to 1.8% y/y in February, down 0.5 percentage points from the prior month. The deceleration was driven by declines in gasoline, natural gas, homeowners’ replacement costs, other owned accommodation expenses, and travel tours.
TD Securities said the report adds to an increasingly soft domestic backdrop heading into the March decision, noting that three-month annualised core inflation has fallen to a cycle low of 1.0%. “We do not expect softer inflation to weigh as heavily on the Bank’s deliberations given the risks posed by higher energy prices, but it should provide greater scope to look through these pressures in the near term.”
TD analysts added that it is too early for the Iranian conflict to have a material impact on the March decision, given uncertainty around its duration and implications for global energy supply.
JP Morgan’s Michael Hanson concurred. “In its communications this week, we expect the bank to stress the uncertainty as keeping policy makers on the sidelines as it closely watches the incoming data.” He added that Governor Tiff Macklem could highlight the intensification of two-sided risks for policy. However, the US investment bank did not expect the Governing Council to signal a material risk for shifting to a tighter policy stance unless there were signs that inflation expectations were rising uncomfortably.
“Otherwise, recent labour market weakness and downside risks from US geopolitical and trade policy actions should keep the possibility for some further easing in the pipeline—although, again, we don’t expect this idea to be stressed at this week’s press conference,” concluded the expert.