The BoC Rate Hold: Brought to You By the Letter ‘U’ for Uncertain
Stephen Punwasi, March 18, 2026
Canada’s normally calm central bank admitted it has no clue what it should be doing right now. The Bank of Canada (BoC) held its key overnight rate, but made it clear this isn’t the usual sign of confidence in a stable economy. Warning of the threat of dual shocks to energy and global economic growth, the Governor’s opening remarks made it clear that he felt uncertain about what comes next. Heck, close to 1% of the words in the Governor’s opening remarks were literally the word “uncertain.”
BoC Overnight Rate Unchanged, Not a Usual Sign of Stability
The BoC held at 2.25%, at the low end of the neutral policy rate—a level it’s been at since October. The bank cited headline inflation at 1.8%, and 3-month Core CPI measures down to 1% annualized. Weak readings like this would typically spur cuts, especially when accompanied by the central bank’s concerns about the labour market and slow GDP.
Stable interest rates are typically a sign of a stable economy, but this isn’t one of those “mission accomplished” moments. The BoC sees stable economic growth, but it’s clearly not stable enough to dampen concerns regarding shock absorption. It’s effectively in a policy stalemate, where cuts risk reigniting inflation and a hike would penalize the economy. This marks a shift from active policy to a conditional pause with the risk of tightening.
Yeah, tightening. Those low inflation data points may not stick around for much longer.
Bank of Canada Really Wants You To Know It’s Uncertain, Says It 6x
If you took a drink every time the BoC mentioned it was uncertain in its opening statement, you would need medical attention. On average, the Governor mentioned it every 128 words. It was a clear shift for someone who just a few weeks ago told business leaders the whole country should reroute its supply chains, arguing it wasn’t a choice.
“The Canadian economy continues to face heightened uncertainty related to US trade policy and geopolitical risks,” explains BoC Governor Tiff Macklem. A notable departure from his certainty just a few weeks prior that Canada’s era of trade with the US is over.
The Governor then warned of a new risk layer: “Now the war in Iran has added a new layer of uncertainty.” The conflict’s consequences have spread far beyond the Middle East, with the BoC suggesting it presents a dual shock risk. They see higher oil costs potentially driving inflation, while the conflict simultaneously presents a risk to demand, slowing global growth.
Notably absent from the speech is the normalization of energy prices from the CPI index. The BoC initially warned that the removal of the carbon tax would temporarily reduce headline CPI by 0.7 points for a period of 12 months. Those 12-months are coming up fast… and furiously, removing the temporary suppression by this April.
Bank of Canada Has No Clear Path Forward, Suggests Reactive Policy
Shocking, the BoC isn’t clear on the path going forward. “Its impact… will depend on how long the conflict lasts and the extent to which it spreads,” warns the Governor. “In its monetary policy deliberations, Governing Council is considering both the most likely path for the economy and inflation, and the risks to our outlook.”
Without stating it, the narrative presented is a concern of stagflation—a recession where prices rise. The BoC further made it clear that “we stand ready to respond as needed,” suggesting a departure from the policy of the Ghost of Governors’ Past.
The market takes between 18 and 24 months to reflect monetary policy changes. That makes it a terrible tool to address economic shock, but that’s exactly the plan it’s presenting. The risks presented also strongly indicate the skew is towards a reaction rate hike, potentially restricting credit at a crucial time when the exact opposite may be needed.
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