{"id":44184,"date":"2026-05-14T00:03:33","date_gmt":"2026-05-14T00:03:33","guid":{"rendered":"https:\/\/www.europesays.com\/canada\/44184\/"},"modified":"2026-05-14T00:03:33","modified_gmt":"2026-05-14T00:03:33","slug":"iran-war-u-s-trade-policies-remain-key-worries-for-bank-of-canada-in-setting-rates","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/canada\/44184\/","title":{"rendered":"Iran war, U.S. trade policies remain key worries for Bank of Canada in setting rates"},"content":{"rendered":"\n

Impacts of soaring oil prices<\/a> and the uncertainty surrounding United States tariffs<\/a> remained top of mind for the Bank of Canada<\/a> governing council, with some concerned about the uncertainty they pose to Canada\u2019s economic outlook<\/a>.<\/p>\n

A summary of deliberations by the central bank\u2019s governing council \u2014 which led to the key overnight rate being held at 2.25 per cent for the fourth time in a row<\/a> \u2014 was released Wednesday.\u00a0Governing council members expected oil prices to ease and inflation<\/a> to have peaked at three per cent in April 2026 before gradually returning to the two per cent target in early 2027, according to the document.<\/p>\n

Members also predicted that gross domestic product<\/a> will grow to 1.2 per cent in 2026 before rising to 1.6 per cent in 2027 and 1.7 per cent in 2028, with a gradual rise in exports and business investments driving that growth.<\/p>\n

However, that scenario is highly dependent on the persistence of the oil price shock and whether the United States imposes additional tariffs on Canada. If energy prices remain high, inflation could rise further and remain elevated for longer, which could require consecutive increases to the policy interest rate<\/a>. Furthermore, if the U.S. government imposes significant new trade restrictions, it could weaken activity and push inflation down, which means the policy interest rate might need to be cut further, the council wrote.<\/p>\n

\u201cGoverning Council agreed that their outlook for growth and inflation in Canada was highly conditional on U.S. tariffs remaining unchanged and on lower oil prices, which would depend on developments in the war in the Middle East,\u201d the summary of deliberations read.<\/p>\n

While geopolitical tensions<\/a> and the trade war<\/a> informed the discussions, the governing council said the impact could be more limited.<\/p>\n

Core inflation showed some downward momentum, even if higher oil prices pushed key inflation to 2.4 per cent in March, and there is no evidence to suggest that higher prices were spreading more broadly to other goods and services, the council said. The economy is also in a position of excess supply, meaning businesses are producing more goods and services than consumers are buying, and inflation has hovered around the central bank\u2019s target of two per cent since summer 2024. This, combined with a soft labour market, means businesses are less likely to pass higher costs to consumers.<\/p>\n

The council also said that, despite uncertainty surrounding the upcoming Canadian-U.S.-Mexico Agreement<\/a> negotiations, businesses reported stronger expectations for sales growth and investment. Businesses also expected the Iran war to raise costs but soft demand was limiting their ability to fully pass on those costs. The central bank\u2019s first-quarter business outlook survey results also suggest business sentiment is improving, rising back to pre-tariff levels.<\/p>\n

However, governing council members acknowledged there could be less excess supply than expected, and businesses could pass on higher costs more rapidly during a time when Canadians are more sensitive to price hikes.<\/p>\n

Higher energy prices and supply bottlenecks could also create broader cost pressures, with inflation spreading to more goods and services.<\/p>\n

In the end, the governing council concluded that uncertainty remains \u201cunusually elevated\u201d and the actual outcome for the Canadian economy<\/a> could reflect a combination of the two shocks \u2014 energy prices and tariffs \u2014\u00a0and other developments.<\/p>\n

For now, they said they could look through the initial impact the war in the Middle East had on oil prices and the current policy rate is appropriate to keep inflation close to the two per cent target. But the central bank needs to be prepared to act in the future to prevent broader and persistent inflation, they wrote.<\/p>\n

\u201cGoverning Council agreed that, depending on what happened, they may need to be nimble in their response to events,\u201d the summary of deliberations said.<\/p>\n

\u2022 Email: ptran@postmedia.com<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"Impacts of soaring oil prices and the uncertainty surrounding United States tariffs remained top of mind for the…\n","protected":false},"author":2,"featured_media":25538,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[693,17,11858,19482,1960,6700,19481,1209],"class_list":["post-44184","post","type-post","status-publish","format-standard","has-post-thumbnail","category-canada","tag-bank-of-canada","tag-canada","tag-core-inflation","tag-deliberations","tag-energy-prices","tag-governing-council","tag-governing-council-members","tag-oil-prices"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/posts\/44184","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/comments?post=44184"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/posts\/44184\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/media\/25538"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/media?parent=44184"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/categories?post=44184"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/tags?post=44184"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}