• Prior was 2.25%
• BOC says risks to growth are to the downside while inflation risks have gone up
• As the outlook evolves, we stand ready to respond as neede
• Recent data suggest that near-term economic growth will be weaker than anticipated in January
• The labour market remains soft
• Recent data also suggest ongoing weakness in exports
• Says the war in the Middle East has increased volatility in global energy prices and financial markets
• Prior to the war, the global economy was on pace to grow at around 3%
• Since the outbreak of the conflict in the Middle East, global oil and
  natural gas prices have risen sharply, and this will boost global
  inflation in the near-term
• Financial conditions have tightened from accommodative levels
• The Canada-US dollar exchange rate has remained relatively stable
• Says soft Q4 GDP was due to inventory drawdown with domestic demand +2%
• The press conference is at 10:30 am ET

The Bank of Canada is signaling that it doesn’t know what it will do next and is watching the Middle East closely. I doesn’t like what it’s seeing on growth or inflation so it could go either way. Historically, it’s the growth side that cracks and central banks cut rates but that’s not always the case it would be very tough to do if energy prices stay high.

The Bank of Canada decision today comes after one of the more dramatic policy pivots in the central bank’s modern history. After hiking the overnight rate ten times in 2022-23 to bring it all the way up to 5%, Governor Macklem reversed course in June 2024 and never really looked back. The BoC cut at every meeting from June through October 2025 — nine consecutive reductions totaling 275 basis points — including two jumbo 50bp moves in October and December 2024 when it became clear the economy was buckling under the weight of restrictive policy. By the time the dust settled last autumn, the rate sat at 2.25%, right at the bottom of the Bank’s own neutral range estimate.

The December 2025 hold marked the first pause in over a year, and the January 2026 decision confirmed the BoC was content to sit on its hands. Macklem signaled that with inflation tracking close to the 2% target and the overnight rate no longer clearly restrictive, a more patient approach was warranted — barring a material shock. Now the BOC is showing that it’s agitated though unclear if the next move will be a cut or a hike.

In terms of data, Canada’s economy contracted at an annualized half-percent clip in Q4 2025, undershooting the Bank’s call for flat growth. February’s labour force survey was ugly — 84,000 jobs lost and unemployment back up to 6.7%. Layer on the Iran conflict sending oil prices surging, the looming USMCA review, and ongoing US tariff uncertainty, and Macklem has a mess on his hands. Markets had priced roughly 92% odds of another hold today, but the tone from the press conference be critical.

USD/CAD was trading at 1.3719 ahead of the decision and was up 27 pips on the day and is unmoved in the aftermath. The market is entirely focused on the Iran war right now.