Last Updated On 29 April 2026, 10:26 AM EDT (Toronto Time)
The Bank of Canada announced today that it will maintain the overnight policy rate at 2.25%, keeping the Bank Rate at 2.5% and the deposit rate at 2.20%.
The decision comes as Canada faces two simultaneous economic threats that are pulling the economy in opposite directions.
The ongoing conflict in the Middle East is pushing energy prices sharply higher, while US trade tariffs continue to suppress Canadian exports and business investment.
Governor Tiff Macklem and the Governing Council chose to hold steady rather than cut or raise rates, signalling that both risks require careful monitoring before any further policy action.
This marks a pause after the Bank’s cumulative rate cuts from 4.75% to 2.25% over the past 18 months that were designed to support a slowing Canadian economy.
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Why The Bank of Canada Held The Rate
The central bank faced a difficult balancing act at today’s announcement.
Cutting rates further would risk fuelling inflation that is already being pushed higher by surging gasoline prices tied to the Iran war.
Raising rates would punish an economy that contracted in the fourth quarter of 2025 and is only beginning to show signs of modest recovery in early 2026.
The Bank’s April Monetary Policy Report assumes that tariffs remain unchanged and the global benchmark price of oil declines to US$75 per barrel by mid-2027.
That assumption is critical because it underpins the forecast that inflation will return to the 2% target by early next year.
If oil prices remain elevated beyond that timeline, the Bank may be forced to respond with tighter monetary policy to prevent inflation from becoming entrenched.
Iran War Drives Oil Prices And Inflation Higher
The war in Iran has sent energy prices sharply upward and disrupted global transportation networks.
For oil-importing countries, these price increases are reducing growth prospects and pushing inflation higher simultaneously.
Canada occupies an unusual position in this crisis because it is a large net exporter of oil.
Higher crude prices increase Canada’s national income through energy exports even as consumers feel the squeeze of elevated gasoline prices at the pump.
CPI inflation climbed to 2.4% in March 2026, driven primarily by sharply higher gasoline prices after several months of slowing inflation data.
The Bank expects inflation to rise further to approximately 3% in April before easing back toward the 2% target early in 2027 as oil prices moderate.
Core inflation has held steady at just above 2%, and the proportion of CPI basket components rising above 3% has declined in recent months.
The Governing Council stated that it is looking through the war’s immediate impact on inflation but will not allow higher energy prices to become persistent inflation.
How US Tariffs Are Weighing On Canada’s Economy
US trade policy continues to reshape global trade patterns and remains a significant source of uncertainty for Canadian businesses.
Tariffs have suppressed Canadian exports and discouraged business investment, creating drag on an economy that was already dealing with weak demand.
The full list of US goods affected by tariffs shows how broadly the trade conflict is affecting cross-border commerce.
Canada’s retaliatory tariffs on US imports have added further complexity to the economic picture for both countries.
The Bank noted that the labour market has recorded job losses in sectors specifically targeted by US tariffs, compounding the broader weakness in hiring.
Business investment remains cautious as companies wait for greater clarity on trade policy before committing capital to expansion or new projects.
What This Means For Canadian Mortgage Holders
The rate hold means that variable-rate mortgage holders will see no change in their borrowing costs for now.
Canadians with variable-rate mortgages tied to the prime rate will continue paying the same monthly amount they have been paying since the last rate adjustment.
Fixed mortgage rates, which are driven by bond yields rather than the Bank’s policy rate, have been rising modestly since January due to elevated inflation expectations.
Canada’s fixed mortgage rates increased in April as bond yields reflected global uncertainty from the Iran war and shifting expectations about future rate cuts.
Housing activity declined in the fourth quarter of 2025 and continues to be held back by slow population growth, economic uncertainty, and ongoing affordability challenges.
The Bank’s forecast does not project any additional rate cuts in the near term, which means mortgage holders should not expect further relief on borrowing costs through the spring and summer.
Canadians approaching mortgage renewal should compare offers from multiple lenders and consider locking in rates before bond yields move higher if inflation remains persistent.
Canada’s Labour Market Remains Soft
The unemployment rate remains in the 6.5% to 7% range, reflecting both weak hiring and fewer people actively seeking work.
Employment growth has been subdued over the past year, with particularly sharp declines in sectors that are exposed to US tariff actions.
The latest unemployment rates by Census Metropolitan Area show that several major Ontario and Alberta cities remain above the 6% threshold that restricts low-wage hiring through the Temporary Foreign Worker Program.
For job seekers, the most in-demand jobs in Canada for 2026 remain concentrated in administrative, healthcare, logistics, and skilled trades roles.
The top employers in Canada for 2026 continue to be found in government, banking, and healthcare sectors that are less exposed to trade disruptions.
Canada’s brain drain among highly skilled immigrants adds another layer of concern, as a soft labour market accelerates the departure of professionals who face underemployment.
The Bank expects the labour market to recover gradually as GDP growth picks up through 2027 and 2028, but the pace will depend heavily on trade policy outcomes.
Where Inflation Is Heading Next
Near-term inflation expectations have moved upward because of higher gasoline prices and persistently elevated food costs.
However, longer-term inflation expectations have remained anchored around the Bank’s 2% target, which is a key reason the Governing Council held rates rather than raising them.
The Bank stated that there is little evidence so far that oil price increases have fed through more broadly to goods and services prices, but this requires close monitoring.
The new Canada Groceries and Essentials Benefit is timed to provide affordability relief starting with a one-time top-up deposit on June 5, 2026, followed by enhanced quarterly payments from July.
The federal government also reduced the lowest income tax rate to 14%, saving individual Canadians up to $420 per year in an effort to offset the impact of rising consumer prices.
If the Bank’s oil price assumptions hold, CPI inflation should decline from its expected April peak of approximately 3% back to the 2% target by early 2027.
Canada’s GDP Outlook For 2026 To 2028
The Bank projects GDP growth of 1.2% in 2026, rising to 1.6% in 2027 and 1.7% in 2028 as exports and business investment gradually resume along a lower trajectory.
After the economy contracted in the fourth quarter of 2025, growth is forecast to have resumed in early 2026 supported by consumer spending and government expenditures.
The global economy is expected to grow at about 3% per year through 2028, with US growth remaining solid due to AI-related investment and consumption gains.
China’s economy is being supported by robust exports, while the euro area faces headwinds from higher oil and natural gas prices.
Financial conditions remain volatile, with bond yields modestly higher since January and equity markets recovering after sharp declines at the start of the Iran war.
The US dollar has appreciated against most major currencies since the conflict began, though the Canada-US exchange rate has been relatively stable.
Canada’s reduced immigration levels for 2026 through 2028 are contributing to slower population growth, which is dampening both housing demand and consumer spending.
What The Bank of Canada Is Watching Next
The Governing Council is closely monitoring the impact of the Middle East conflict and how the Canadian economy responds to US tariffs and trade policy uncertainty.
The Bank stated that it stands ready to respond as needed and is committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.
The next scheduled interest rate announcement is expected in June, and the Bank will publish an updated economic outlook at that time.
Frequently Asked Questions (FAQs)
What is the Bank of Canada interest rate as of April 29, 2026?
The Bank of Canada held its overnight policy rate at 2.25% on April 29, 2026, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
When is the next Bank of Canada interest rate announcement?
The next scheduled Bank of Canada interest rate announcement is expected in June 2026, when the Bank will also release an updated economic forecast.
Will the Bank of Canada cut rates again in 2026?
The Bank has not signalled any imminent rate cuts and is focused on monitoring whether oil-driven inflation remains temporary or becomes persistent before making further adjustments.
How does the Iran war affect Canadian interest rates?
The Iran war is pushing oil and gasoline prices higher, which increases inflation and makes the Bank of Canada more cautious about cutting rates further even though the economy is growing slowly.
How do US tariffs affect the Canadian economy and interest rates?
US tariffs are reducing Canadian exports, suppressing business investment, and causing job losses in targeted sectors, which weakens economic growth but also limits the Bank’s ability to raise rates in response to inflation.
Fact-Checked: All interest rate figures, GDP projections, CPI inflation data, and labour market statistics cited in this article are sourced directly from the Bank of Canada’s April 29, 2026 press release and the accompanying Monetary Policy Report.
Disclaimer: This article is for general information only and does not constitute financial, investment, or legal advice. Consult a licensed financial advisor for guidance specific to your situation.
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