Bank of Canada Set to Hold Rates at 2.25% on April 29

The Bank of Canada is expected to hold its policy rate at 2.25 per cent when Governor Tiff Macklem and the Governing Council deliver their next decision on April 29. Market pricing on prediction platforms points to roughly a 96 per cent probability of no change, a level of conviction that reflects both the central bank's own signalling and the broader economic crosswinds Canada now faces.

A hold would extend the central bank's pause to a fifth consecutive meeting, maintaining a rate that has fallen more than two full percentage points from the peak of the last tightening cycle. It would also reinforce the Bank's view that the Canadian economy, while softer, has not yet weakened enough to justify further cuts in the face of unpredictable tariff dynamics and volatile global energy prices.

The April 29 announcement will be accompanied by a new Monetary Policy Report, which will lay out updated projections for growth, inflation, and the output gap. Markets will scrutinise that report for any hint of how the Bank is weighing the offsetting effects of United States tariffs, federal affordability measures, and the lingering spike in oil prices tied to the Iran war and the Strait of Hormuz disruption.

The numbers pointing to a hold

Recent data have made the case for a pause relatively straightforward. Consumer price index inflation eased to 1.8 per cent in February, down from 2.3 per cent in January, with core measures of inflation also settling close to the Bank's 2 per cent target. March CPI data, due April 20, will arrive just days before the rate decision and will shape the final tone of the announcement.

The unemployment rate, while still low by historical standards, has drifted higher. Canada's jobless rate was 6.7 per cent in February, up from 6.5 per cent late last year. Wage growth has moderated to roughly 3.6 per cent when adjusted for compositional effects, a level the Bank considers broadly consistent with easing inflation rather than overheating.

Gross domestic product growth remains modest. Projections from the Bank and private sector forecasters cluster around 1 to 1.5 per cent for 2026, a pace that leaves little slack in either direction. That soft but stable backdrop supports holding rates steady while the Bank evaluates the full effects of tariffs and geopolitical shocks.

What the tariff picture means

United States tariff policy continues to loom as the dominant external risk. While the Trump administration extended indefinitely its exemption for USMCA-compliant trade in early April, spared products still account for only a portion of cross-border flows. Targeted tariffs on steel, aluminum, automobiles, and softwood lumber continue to weigh on Canadian exporters, and a fresh threat of a 100 per cent tariff in response to any Canada-China deal hangs over negotiations.

The Bank has repeatedly emphasised that tariffs produce two offsetting effects. On one hand, they can push consumer prices higher as imported inputs become more expensive, a reason to keep policy tight. On the other, they suppress export demand and business investment, which pulls down growth and disinflates over time. Governor Macklem's team has signalled that the balance of those effects will determine how long rates stay at current levels.

Some private economists argue the Bank may need to resume cutting later this year if trade frictions persist and manufacturing employment continues to deteriorate. Others point out that the federal government's own measures, including the temporary suspension of the federal fuel excise tax and the Canada Groceries and Essentials Benefit, are already acting as fiscal stimulus that partially substitutes for monetary easing.

Oil, the Strait of Hormuz, and imported inflation

A significant wild card heading into the decision is energy. Global oil prices have remained volatile since the Iran war began in late February, with the Strait of Hormuz oscillating between open and restricted over the past two weeks. Canadian pump prices surged by more than 40 cents a litre in some regions during the worst of the disruption, prompting Ottawa to temporarily suspend the federal excise tax on gasoline, diesel, and aviation fuel from April 20 through Labour Day.

That combination of higher prices at the pump and lower excise tax will produce a complex signal in the March and April CPI data. Economists expect headline inflation to drift higher in the April print as the fuel shock filters through, before the excise tax suspension begins to offset the increase in May and June. The Bank will try to see through that volatility by focusing on core measures that strip out energy and food.

For households, the practical effect is that headline inflation may look temporarily elevated at precisely the moment when the Bank is trying to reassure Canadians that underlying price pressures remain contained. Clear communication around that gap will be an important part of the messaging on April 29, and the Monetary Policy Report is expected to address it in detail.

Mortgage holders and the housing market

For Canadian homeowners, a rate hold is neither good nor bad news so much as a continuation of current conditions. Variable-rate mortgage holders will see no change in their interest charges, while fixed-rate borrowers will continue to see pricing driven by bond markets rather than by overnight rate moves. The 2.25 per cent policy rate remains well below peak cycle levels but above the historically low settings that characterised much of the previous decade.

The housing market itself is softer than it has been in some years. First-quarter data show the national aggregate home price down 2 per cent year over year, with Toronto off 4.7 per cent and Vancouver off 4.5 per cent. Mortgage originators say demand has been muted by economic uncertainty, rising insurance costs, and a general wait-and-see posture among buyers who believe further rate relief may come later in the year.

Canada Mortgage and Housing Corporation projections for housing starts remain subdued, with the federal agency warning that condominium construction in particular could remain weak through 2028. The Bank will continue to weigh housing market weakness as part of its broader assessment of demand, though it has made clear that monetary policy is not primarily a housing policy tool.

Political backdrop

The decision will arrive in a changed political environment. Prime Minister Mark Carney, himself a former Bank of Canada governor, has been careful to avoid public pressure on current Bank decisions. His government's April 13 majority win in three byelections has strengthened its ability to pursue fiscal measures, but Ottawa has emphasised that rate decisions remain the Bank's alone.

Opposition parties will nevertheless use the announcement as a platform. Conservative finance critics have argued that federal deficits are limiting the room the Bank has to cut further without reigniting inflation, while the NDP has pushed for faster relief for variable-rate mortgage holders. Those debates will frame how the decision is received politically, even if they carry no formal weight in the Governing Council's deliberations.

Provincial governments, particularly in Ontario, British Columbia, and Atlantic Canada, have also flagged borrowing costs as a constraint on their capital plans. New Brunswick's fiscal outlook was recently downgraded by Moody's to negative, and Prince Edward Island tabled a record $410-million deficit earlier this month. Decisions by the Bank continue to shape the cost at which provinces access bond markets, particularly at longer maturities.

Savers, business borrowers, and investment dynamics

While much of the public attention around rate decisions focuses on mortgage holders, Canadian savers and business borrowers face their own set of implications. Savings account interest rates, guaranteed investment certificate returns, and bond yields have all adjusted lower from peak cycle highs, though they remain attractive compared with the near-zero returns that dominated much of the 2010s. A prolonged hold at 2.25 per cent keeps those returns at current, moderate levels.

Business borrowing has been one of the softer components of the Canadian economy over the past year. Surveys from the Bank of Canada's Business Outlook Survey have shown that firms remain cautious about capital expenditures, citing trade policy uncertainty, elevated input costs, and moderate demand forecasts as reasons to delay major commitments. The Bank has pointed to those survey results in past communications as evidence that monetary policy may not be the binding constraint on investment in the current environment.

Small business owners, in particular, have signalled to the Canadian Federation of Independent Business and other advocacy groups that they would welcome rate relief but that cost-of-living, hiring, and tariff pressures are bigger near-term concerns. The combination of federal affordability measures and modest monetary support may ultimately be more effective than monetary policy alone at shifting the investment environment.

What's next

Beyond April 29, market participants will turn to the June and July decisions, when the Bank will have a clearer read on how tariffs, energy shocks, and fiscal stimulus have combined to shape second-quarter growth. Some economists expect the Bank to remain on hold through the summer, while others see scope for cautious cuts if unemployment continues to rise or if tariff frictions produce clearer disinflation.

The broader narrative is that Canada's monetary environment has normalised after the extraordinary swings of the early 2020s. Rates are no longer at emergency settings in either direction, inflation is near target, and the economy is growing modestly. The challenge for the Bank will be to guard that equilibrium while navigating an external environment that features war in the Middle East, a grinding conflict in Ukraine, and an unpredictable trade partner to the south.

For Canadians watching their mortgages, their paycheques, and their grocery bills, the April 29 decision will likely feel more like a steady-as-she-goes signal than a dramatic turning point. The more consequential moves, if they come, will be later in the year, and they will depend as much on geopolitics and fiscal policy as on the data that now sits on the Governing Council's table.