Bank of Canada holds interest rate as economic weakness amid rising inflation poses 'dilemma'

The Bank of Canada held its key interest rate at 2.25 per cent for the fifth consecutive time on Wednesday.

The central bank said weaker-than-expected economic activity in the first quarter of 2026 and rising inflation from higher energy prices were key concerns that informed the governing council’s decision.

Monetary policy needs to be focused on making sure higher energy prices do not turn into persistent inflation, even though there is currently little evidence to suggest that higher energy prices due to the war in Iran are affecting other consumer prices, the central bank said.

“Governing council agreed to look through the war’s near term impact on inflation, but if energy prices stay high, we will not let their effects become broad-based persistent inflation,” governor Tiff Macklem said according to prepared remarks.

“Economic weakness combined with rising inflation is a dilemma for monetary policy…. Uncertainty is unusually elevated, and the risks could shift. Monetary policy may need to be nimble.”

The move was in line with economists’ expectations, who largely predicted the central bank would hold rates amid rising oil prices and uncertainty surrounding U.S trade policy.