The Bank of Canada left its overnight rate unchanged at 2.25% as widely expected, but the accompanying statement struck a cautious tone, emphasizing downside risks to growth even as inflation risks rise due to higher energy prices. Policymakers acknowledged that uncertainty remains elevated, particularly around US trade policy and the unfolding Middle East conflict.
The key shift lies in the balance of risks. BoC noted that recent data point to weaker-than-expected economic activity, with labor market conditions deteriorating as Q4’s job gains were “largely reversed” and unemployment rose to 6.7% in February. “Ongoing weakness in exports” and trade uncertainty further cloud the outlook, reinforcing the view that near-term growth will be softer than previously anticipated.
While inflation is expected to pick up again on higher gasoline prices, current conditions remain benign, with CPI easing to 1.8% yoy and core measures close to 2%. This suggests inflation pressures are not yet embedded, allowing BoC to focus on growth stabilization.
