Canada’s central bank may have kept its benchmark interest rates steady Wednesday amid global economic uncertainty, but Bank of Canada Governor Tiff Macklem says they might consider “consecutive increases” if the price of oil keeps climbing.
The Bank of Canada held its benchmark interest rate unchanged at 2.25 per cent as the Iran war entered its third month, leading to a continued fog of uncertainty over the global economy.
This marks the fourth straight rate hold for the central bank since it delivered a 0.25 per cent cut in October 2025.
However, the central bank’s calculations made two key assumptions on Wednesday – the price of oil will decline to around US$75 per barrel around mid-2027 and U.S. tariffs on Canada will remain roughly the same.
The price of Brent crude, which is the global benchmark, was around US$109 per barrel on Wednesday. If the war continues, with oil prices continuing to rise, the central bank may be forced to change its approach, Macklem said.
“If energy prices go higher, and particularly if they stay higher for longer, there could well be a need to increase the policy rate to get inflation back to two per cent,” Macklem told reporters in Ottawa.
“There may be a need for consecutive increases in the policy interest rate,” he added.
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If oil prices decline to US$75 per barrel, it would mean that inflation will peak around three per cent around April and then “ease back to two per cent by early next year,” Macklem said.
The central bank cited a “volatile” global economy in its decision on Wednesday, with the war in Iran and U.S. trade policy as “ongoing sources of volatility.”
The Bank of Canada projects the economy will expand 1.2 per cent in 2026, 1.6 per cent in 2027, and 1.7 per cent in 2028, “as growth in exports and business investment gradually resumes.”
However, that could change if the upcoming trade talks with the United States go poorly for Canada. The Canada-U.S.-Mexico (CUSMA) trade agreement is up for a review this summer.
“If the United States imposes significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth,” Macklem said on Wednesday.
So far, there is “little evidence that higher oil prices have fed through to other goods and services prices more broadly,” Macklem said.
“But it is early days and we will be watching this closely,” he said.
Iran has blockaded the Strait of Hormuz – the key waterway that accounts for 20 per cent of global oil supply – in response to U.S. and Israeli strikes on its territory. The blockade, combined with Tehran’s strikes on energy sites across the Persian Gulf, has led to a global fuel and energy crisis.
For Canadians, that has meant higher prices at the gas pumps and costlier groceries as Canada’s food suppliers started adding fuel surcharges to food deliveries.
Canada’s inflation rate inched higher to 2.4 per cent in March, compared with 1.8 per cent in February, led largely by fuel costs amid the Iran war and the closure of the Strait of Hormuz.
Excluding gasoline, though, the pace of inflation slowed to 2.2 per cent in March, compared with 2.4 per cent in February.
Food prices, however, soared in March. The prices of food purchased from stores rose by 4.4 per cent in March, compared with 4.1 per cent in February.
Fresh vegetables saw the steepest increase, with prices for fresh vegetables rising 7.8 per cent in March. This was a significant increase compared with February, which barely saw any increase in the price of fresh vegetables (0.5 per cent).
Omg. Why not make bus rides free first to lower demand. And reducing export to USA, start refining in Canada
Didn’t the Liberal keep jacking up the carbon tax year on fuel and stating there was no effect on inflation?
Great! Let’s fix oil price by hiking shelter costs.
High Oil prices great for Alberta. Suck it up Ontario, Quebec, and the Atlantic
@Earl. Clearly you are clueless. Many gulf states ship thru the straight of Hormuz. Please blame Trudeau as he cancelled Energy East. Irving gets crude from KSA and other gulf states.
There are 300 billion barrels in the Alberta tar sands regions. Canada does not import oil from Iran. Buy an EV.
All this anti-Trump stuff.
I call the shots, not Trump.
Let’s not forget that none of this would be happening if the U.S and Israel did not start a war with Iran for absolutely no reason except to bring on “Armageddon”. This is what happens when far right narcissists get power.
Gas guzzlers should enjoy Trump blockading the Strait.
Not gonna end soon.
@ Les: Agreed! Why do we subsubdize two papers here that are AmericAN owned? The Sun chain and the Post. Libbys should stop with their welfare handouts.
F u bank of Canada
It’s interesting how increasing the price of oil through war causes inflation, but increasing it through taxes does not.
Liberal logic fascinates me
Liberal tax dollar subsidized media still pointing the finger at everyone else. Surely all the carbon taxes, plastic taxes and packaging taxes have nothing to do with the cost of everything in Canada. Alberta, strong & free!
Bill Terrance – Your pathetic fear mongering in the Global comment section is really making a difference. You go girl!
The collapse is just around the corner folks.
Does the militarization of police and the disarming of the public make sense yet?
Hope yall can plant a good garden.