(Kitco News) - The Bank of Canada (BoC) maintained its key overnight rate at 2.25% on Wednesday, as expected, but warned that the outlook remains highly uncertain, with the Iran conflict and U.S. trade tariffs magnifying the risks to the global economy. The bank rate stayed at 2.50% and the deposit rate remained at 2.20%.
The Canadian dollar fell to session lows in the minutes after the announcement, but rose slightly in the minutes afterward. USD/CAD last traded at 1.3699 per U.S. dollar, up 0.11% on the session.
Gold fell to a session low of $6,176.89 per ounce in Canadian dollar terms at the announcement, and the yellow metal continued to trade near its lows afterward. XAU/CAD last traded at $6,193.63 per ounce for a loss of 1.55% on the daily chart.
The BoC said in its announcement that the ongoing conflict in the Middle East is causing heightened volatility, even as U.S. trade policy continues to reshape global trade. “Both are ongoing sources of uncertainty,” they wrote. “The Bank’s April outlook assumes tariffs remain unchanged and the global benchmark price of oil declines to US$75 per barrel by mid 2027.”
They noted that the Iran war “has led to sharply higher energy prices and transportation disruptions, diminishing growth prospects in oil-importing countries and boosting inflation worldwide, but that U.S. growth is still expected to be solid based on “AI-related investment and consumption growth,” while China’s economy benefits from strong exports. “In the euro area, higher prices for oil and natural gas will weigh on economic activity,” they said.
The BoC noted that financial conditions remain volatile, “reflecting daily developments in the Middle East and shifting market expectations for inflation and interest rates. Bond yields are modestly higher since January while equity markets, which weakened sharply at the outset of the war, have recovered.”
“Since the start of the war, the US dollar has appreciated against most major currencies,” they wrote. “The Canada-US exchange rate has been relatively stable.”
“Overall, the global economy is expected to grow by about 3% in 2026, 2027 and 2028,” the bank said.” Projections for inflation over the next year are revised up because of the jump in energy prices.”
The Bank said the outlook for economic growth in Canada is relatively unchanged from the January Monetary Policy Report. “After a contraction in the fourth quarter of 2025, growth is forecast to have resumed in early 2026,” they said. “Consumer and government spending are supporting economic activity, while tariffs and trade uncertainty are weighing on exports and business investment.”
The Bank’s April forecast projects GDP growth of 1.2% in 2026, rising to 1.6% in 2027 and 1.7% in 2028 as growth in exports and business investment resumes along a lower trajectory. “Since Canada is a large net exporter of oil, higher oil prices increase national income even as consumers are squeezed by higher gasoline prices,” they noted.
Turning to CPI inflation, the Bank said “there is little evidence that oil prices have fed through more broadly to goods and services prices, but this warrants close attention in the months ahead.”
“We are closely monitoring the impact of the conflict in the Middle East and how the economy is responding to US tariffs and trade policy uncertainty,” they concluded. “Governing Council is looking through the war’s immediate impact on inflation but will not let higher energy prices become persistent inflation.”
