Canada’s central bank is expected to maintain its current interest rate policy throughout the remainder of this year, according to a new Reuters survey of economic experts conducted this week.
The overwhelming majority of 41 economists surveyed between April 21-24 anticipate the Bank of Canada will keep its benchmark overnight rate unchanged at 2.25% when officials meet on April 29. More than 80% of those polled believe rates will remain steady for the entire year.
This consensus persists despite recent spikes in energy costs and ongoing geopolitical tensions involving the U.S.-Israeli conflict with Iran. Financial markets have been pricing in potential rate increases during the final quarter of the year, but economists argue such moves would only be necessary if energy price jumps create lasting inflationary pressures.
“Because of softening core inflation, it does give the Bank of Canada a lot more room to be flexible and patient,” explained Claire Fan, a senior economist at RBC. “They can wait for actual concrete signs of risk of inflation climbing higher, broadening and persisting…as opposed to rushing to make a decision.”
Current economic data supports this patient approach. March inflation registered at 2.4%, falling comfortably within the central bank’s target zone of 1% to 3%. Bank of Canada Governor Tiff Macklem indicated last week that temporary increases in short-term inflation expectations shouldn’t cause alarm for policymakers.
While rising fuel costs have impacted Canadian consumers similarly to other nations, the country’s status as a net energy exporter provides some economic protection against these price shocks.
Economic forecasts show inflation averaging 2.9%, 2.7%, and 2.5% across the next three quarters – roughly 50 basis points higher than January predictions. These upward revisions have led a notable minority of economists (14 out of 34) to anticipate at least one rate hike by the end of March 2025.
Beyond monetary policy, trade concerns loom large for Canada’s economic outlook. The nation’s free trade agreement with the United States and Mexico faces renegotiation this summer, creating additional uncertainty.
“After energy prices settle down the focus is going to turn entirely to…where the USMCA is headed. And frankly, I’m a bit concerned on that front. I am concerned trade is going to continue to be a drag on the Canadian economy,” stated Douglas Porter, chief economist at BMO Capital Markets.
Janice Charette, Canada’s chief trade negotiator with the U.S., acknowledged that resolving all outstanding issues before the July 1 deadline appears unlikely, though she emphasized this wouldn’t necessarily mean the USMCA agreement would collapse.
Economic growth projections reflect these challenges, with Canadian GDP expected to expand 1.2% in 2026, down from 1.7% anticipated for 2025. Porter noted this combination of weaker growth and rising inflation creates concerning conditions, though it doesn’t quite reach the threshold for stagflation.
Labor market forecasts show mixed signals, with unemployment projected at 6.6% for 2026, slightly improved from the 6.7% predicted in January surveys.
“We expected the labour market improvement to be very choppy,” Fan observed, linking job losses to slowdowns in sectors dependent on U.S. demand. “As domestic demand picks up later this year, it’s going to continue to support that improvement, balancing the trade weakness.”
