3 hours ago
Updated Wed, 18 March 2026 at 7:30 am GMT-4 1 min read
The Bank of Canada is expected to hold its policy rate steady at 2.25 per cent when it releases its latest interest rate decision at 9:45 a.m. ET today. The central bank faces a daunting set of economic risks due to the war in Iran and ongoing uncertainty around the Canada–U.S.–Mexico Agreement. Economists polled by Reuters were unanimous in their expectations for a hold today.
The conflict in Iran has shifted global concerns “from trade pot to oil frying pan,” BMO economist Sal Guatieri said in a Monday note to clients, putting upward pressure on inflation and bond yields, and weakening global demand, confidence and markets. These factors “will undercut economic growth, while handcuffing central bankers from providing support,” leaving them in a wait-and-see mode, Guatieri notes — a situation facing central banks around the globe.
“We suspect policymakers will look past the oil-driven rise in prices and remain wary of economic risks until the fog from both the Iran war and the trade war lifts, keeping overnight rates at modestly supportive levels,” Guatieri writes.
BMO sees the Bank of Canada (BoC) keeping its overnight rate unchanged this year and next. Market expectations of a hike grow stronger through the end of the year, according to LSEG data, with odds of a December hike currently at 73.6 per cent.
The Bank has held its policy rate steady at its last two consecutive meetings.
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'Not yet strong': Will Canada's economy grow in 2026?
With a commodity-roiling war raging abroad, and a critical trade negotiation with the U.S. on the horizon, the path forward for Canada’s economy is anything but clear heading into today’s BoC decision.
Here’s what some top economists expect this year:
“We remain optimistic that per-capita GDP growth will rise again in 2026,” RBC economists led by Frances Donald wrote last week. “The economy is not yet strong, but has remained more resilient than feared when U.S. tariff threats began escalating a year ago.”
RBC says spiking global energy prices as a result of war in the Middle East are a double-edged sword for Canada’s economy, bolstering the oil and gas industry while raising costs for households and businesses via pricier transportation. RBC sees real gross domestic product (GDP) rising 1.1 per cent in 2026, and 1.5 per cent in 2027.
According to Statistics Canada, real GDP increased by 1.7 per cent in 2025, the slowest annual pace since 2020.
BMO Capital Markets sees real GDP gaining one per cent this year, accelerating to 2.2 per cent growth in 2027. Senior economist Sal Guatieri says this pace would represent the best growth since 2022.
“Even before the Iran war, Canada's economy was on the defensive,” he wrote on Monday. “A more meaningful economic rebound likely awaits some parting of the USMCA clouds and the unleashing of pent-up business investment.”
Last week, Oxford Economics left its prior forecast for Canada’s economy unchanged as war escalated in the Middle East. Tony Stillo, the firm’s director of Canada economics, estimates 1.1 per cent growth in 2026, and 2.1 per cent in 2027.
“We don’t anticipate much of a hit to consumer spending from the fuel price shock in the near term because households are more likely to reduce savings instead,” he wrote on March 11. “Moreover, Canada’s lower- and middle-income households will be supported by the new federal grocery and essential rebate in Q2, which should buoy overall consumer spending.”
All three economists expect the BoC to hold its key policy rate today.
Trade war, Iran conflict leave BoC 'on the sidelines for the foreseeable future': Desjardins
U.S. Trade Representative Jamieson Greer at the OECD Headquarters in Paris on March 16, 2026. (Photo by Ludovic MARIN / AFP via Getty Images) · LUDOVIC MARIN via Getty ImagesTensions are high in the Canada-U.S. trade war.
At the Bank of Canada’s last meeting in January, Governor Tiff Macklem declared “the days of open rules-based trade with the United States are over.” Echoing Prime Minister Mark Carney’s speech at the World Economic Forum in Davos eight days earlier, he went on to call out “structural damage caused by tariffs” impacting Canada’s economy.
Recent weeks have not yielded much unity.
Last Thursday, U.S. Trade Representative Jamieson Greer named Canada among the countries now facing a new expanded American trade investigation related to forced labour.
This followed a widely expected snag for the Trump administration’s global trade war on Feb. 20, when the U.S. Supreme Court ruled 6–3 against the so-called “Liberation Day” tariffs. In this decision, lawmakers also struck down fentanyl-related duties on Canada, Mexico and China.
The White House responded with a fresh 10 per cent worldwide tariff. Those levies do not apply to goods compliant with the Canada-U.S.-Mexico Agreement on trade (CUSMA). They’re also in addition to the Trump administration’s sector-specific tariffs on industries including steel, aluminum, automobiles, and cabinetry.
RBC assistant chief economist Nathan Janzen says, so far, the Trump team's tariff tweaks have been no big deal for Ottawa.
“The new measures don’t significantly change the international trade backdrop for Canada,” he wrote last month.
How this bodes for the recently commenced renegotiation of CUSMA remains to be seen. That uncertainty is a major reason why most economists see the Bank of Canada holding its policy rate in place today.
Of course, reasons for uncertainty are plentiful these days.
“The conflict in Iran is a significant upside risk to price growth,” Desjardins economist LJ Valencia wrote on Monday.
“That said, the upcoming CUSMA review remains a significant downside risk to the overall outlook. Given the uncertain and offsetting potential impacts on inflation, we believe that the Bank is likely to remain on the sidelines for the foreseeable future.”
Read more about what this buffet of risks means for Canada’s real estate and mortgage markets. Yahoo Finance Canada spoke to top economists and experts.
