Bank of Canada expected to hold interest rates as nation faces trade uncertainty, global conflict

Bank of Canada governor Tiff Macklem will announce the interest rate decision Wednesday, March 18. Photo by HYUNGCHEOL PARK/PostmediaArticle contentThe escalating conflict in the Middle East and ongoing trade tensions have pushed talk about whether the Bank of Canada might raise interest rates on Wednesday to the sidelines.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentEconomists expect the key overnight interest rate will be held at 2.25 per cent, with some believing the current pause will last longer, even as markets price in an increase in the second half of the year.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.We apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Play VideoArticle contentArticle content“The ongoing trade uncertainty and fresh conflict-driven unknowns both lead the Bank of Canada to the same point: an ongoing policy pause,” Doug Porter, chief economist at BMO Financial Group, said.Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentHe said a weak jobs report last week, shaky gross domestic product (GDP) growth over the past few quarters and the uncertain outcome of renegotiating the Canada-United States-Mexico Agreement (CUSMA) should keep the bank from raising rates despite what markets are predicting. Article content“To put it mildly, we believe that a rate hike this year would be an extraordinarily bad policy decision,” he said in a post on X.Article contentA spike in energy prices that followed attacks on Iran by the U.S. and Israel is stoking inflation fears, which some expect will put pressure on the Bank of Canada to raise rates.Article contentPorter expects inflation, which had appeared mostly tamed and coming back down to two per cent, will push back up. But even if it passes the central bank’s upper target of three per cent, he said policymakers will look at factors such as a “soggy” housing market that will act as a counterbalance.Article contentAvery Shenfeld, chief economist at CIBC Capital Markets, said there is enough economic slack to prevent a spillover of inflation to core prices if the oil shock proves to be short-lived. In this scenario, the Bank of Canada could be convinced that current interest rates are controlling inflation.Article contentArticle contentBut if there is spillover into other parts of the economy, there could be more pressure to raise rates, something the markets may be pricing in. However, Shenfeld said weak economic and job growth make that decision less likely.Article contentRead More Why the Bank of Canada is likely to stand pat amid an oil crisis Canada's inflation rate cools more than expected Article contentIt may be too early for the Bank of Canada to fully interpret the inflation picture, but there are fewer questions about the “decidedly anemic” economic growth, he said.Article content“The first quarter is off to a weak start, underscored by soft readings in most of the growth and employment data we have for the first month or two of the year,” he said, adding that he could not fathom why markets were pricing in almost two quarter-point hikes this year. Article content“Even if the governor (Tiff Macklem) doesn’t offer a full-throated dovish outlook on inflation, by not giving any hints of a rate hike ahead, he’ll throw some cold water on those inclined to position themselves for a policy tightening this year.”Article contentPorter said trade troubles remain high on the central bank’s radar even as the conflict in the Middle East occupies headlines and drives new fears. Article contentRenegotiation of CUSMA is a big uncertainty since talks appear to be getting under way with several possible outcomes, including scenarios that could lead to interest rate cuts.Trending Subscriber only.

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The United States is losing its grip on Canada's steel market Subscriber only Commodities Posthaste: Even Americans are getting fed up with Donald Trump's tariffs News Saint John's port is booming as Ontario shippers seek to dodge U.S. tariffs Economy Canada mulls joining U.K.-led response force as its military grows PMN Business Canada's inflation rate cools more than expected Economy