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The Bank of Canada will leave its benchmark interest rate unchanged at 2.25 per cent, as is widely anticipated by economists, marking the fourth consecutive hold. (Credit: BRUNSWICK NEWS ARCHIVES) <\/p>\n The Bank of Canada will leave its benchmark interest rate unchanged at 2.25 per cent, as is widely anticipated by economists, marking the fourth consecutive hold. (Credit: BRUNSWICK NEWS ARCHIVES) <\/p>\n
Early signs of softening discretionary spending amid higher fuel prices, continued tensions in the Middle East and trade uncertainties are likely to keep the Bank of Canada<\/a> from changing its key overnight interest rate<\/a> on Wednesday.<\/p>\n If, as widely anticipated by economists, the bank leaves the rate unchanged at 2.25 per cent, it would mark the fourth consecutive hold.<\/p>\n \u201cWe are comfortable with our view that the (Bank of Canada) will be on hold through 2026, barring a material change in the growth and\/or inflation backdrop,\u201d Robert Kavcic, a senior economist at Bank of Montreal, said.<\/p>\n Like other central banks, the Bank of Canada is trying to balance inflation expectations, driven largely by skyrocketing oil prices<\/a> resulting from the conflict in the Middle East, with\u00a0ensuring the economy doesn\u2019t slow down too much.<\/p>\n Supply issues stemming from closure of the Strait of Hormuz<\/a>, following attacks on Iran<\/a> by the United States and Israel, also raise the prospect of ongoing supply constraints.<\/p>\n At home, Kavcic said recent data points, including stagnating job growth, subdued business investment and a tepid housing market, are in line with the Bank of Canada\u2019s March assessment that risks to the economic outlook, including population trends and trade tensions with the U.S., were \u201ctilted to the downside.\u201d<\/p>\n Such trends may have supported an interest rate cut to stimulate economic growth prior to the oil shock, he said, but few economists see that happening now with inflation concerns in the picture. Many forecast that the Bank of Canada\u2019s next move, when it comes, will be a rate increase. Market activity suggests this could happen before year-end.<\/p>\n \u201cThe market continues to price in tightening later in 2026. We believe that has probably gone too far,\u201d Kavcic said. \u201cIt would likely require at least three months of evidence that core inflation is moving higher in the short term and evidence that inflation pressure is broadening.\u201d<\/p>\n Economists at Toronto-Dominion Bank are also expecting the central bank to maintain its rate on Wednesday.\u00a0<\/p>\n \u201cWith the economic fallout from the war still highly uncertain, it would be premature to pivot from a hold, particularly with core inflation still well-behaved,\u201d Rishi Sondhi, an economist at TD, said in a note on Friday.<\/p>\n Headline inflation is up, rising 0.6 percentage points to 2.4 per cent, but the details were \u201cmodestly softer\u201d than expected, he said, adding that gas prices have been more contained through April and the federal government has temporarily removed the excise tax on fuels.\u00a0<\/p>\n Still, he said other data point to rising business input costs, with suggestions this could be passed on to consumers, and there has been some upward drift in inflation expectations since the start of the Middle East conflict.<\/p>\n