Today, the Bank of Canada once again held the policy rate steady at 2.25%. This is the bottom of the Bank’s estimate of the neutral overnight rate, where monetary policy is neither expansionary nor contractionary. With inflation hovering at 2.4% and core inflation falling to 2.0%, the Governing Council sees the current overnight rate as appropriate, as the Bank looks through the inflationary effects of the war in Iran.

“The evolving conflict in the Middle East is causing heightened volatility, and US trade policy continues to reshape global trade patterns. Both are ongoing sources of uncertainty. 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, still well above pre-war oil prices”. According to the BoC, if that happens, inflation should peak around 3% in April and ease back to the 2% target by early next year.

“The Iran war has led to sharply higher energy prices and transportation disruptions, diminishing growth prospects in oil-importing countries and boosting inflation worldwide. In the United States, growth is still expected to be solid over the projection horizon, boosted by AI-related investment and consumption growth. China’s economy is supported by robust exports. In the euro area, higher prices for oil and natural gas will weigh on economic activity.”

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.

“The outlook for economic growth in Canada is little changed from the January Monetary Policy Report (MPR) projection. After a contraction in the fourth quarter of 2025, growth is forecast to have resumed in early 2026. Consumer and government spending are supporting economic activity, while tariffs and trade uncertainty are weighing on exports and business investment. Housing activity declined in the fourth quarter and is held back by slow population growth, economic uncertainty and ongoing affordability issues. The labour market is soft, with subdued employment growth over the past year and job losses in sectors targeted by US tariffs. The unemployment rate remains in the 6½%‑7% range, reflecting both weak hiring and fewer job seekers.”

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. With GDP growing slightly above potential, the current excess supply in the economy is gradually absorbed. While the war in Iran may alter its composition, overall GDP growth is little changed in the updated forecast: Since Canada is a large net exporter of oil, higher oil prices increase national income even as consumers are squeezed by higher gasoline prices.

The Bank’s press release goes on to say that “CPI inflation will likely rise further in April to about 3%. Based on the assumption that oil prices will ease, inflation is forecast to come down to the 2% target early next year and remain around 2% over the projection horizon.

Against this backdrop and taking into account the current projection, Governing Council decided to maintain the policy rate at 2.25%. We are closely monitoring the impact of the conflict in the Middle East and the economy’s response to US tariffs and trade policy uncertainty. Governing Council is looking through the war’s immediate impact on inflation, but will not let higher energy prices become persistent inflation. As the outlook evolves, we stand ready to respond as needed. The Bank is committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.”

WTI crude oil futures jumped more than 5% to above $105 per barrel on Wednesday, amid no signs of a near-term end to the conflict with Iran or the reopening of the Strait of Hormuz. The surge comes as markets weigh the United Arab Emirates’ shock exit from OPEC alongside signs that the conflict involving Iran may persist. Reports that Donald Trump is preparing to extend a blockade on Iranian ports have heightened fears of prolonged supply disruptions, particularly through the critical Strait of Hormuz. Negotiations remain stalled, with both sides entrenched, raising expectations that the standoff could drag on for weeks. Meanwhile, US inventory data showed sharp declines in crude and fuel stockpiles, while exports surged to record highs above 6 million barrels per day, underscoring tightening global supply. Gasoline and refined fuel prices have also spiked, amplifying inflation concerns worldwide as energy markets remain on edge.

The Canadian dollar weakened, and market-driven interest rates rose despite the Bank of Canada’s rate hold. The Fed is expected to follow suit this afternoon, maintaining its policy rate at 3.5% to 3.75%.

Bottom Line

The Bank of Canada has shown its willingness to bolster the Canadian economy amid unprecedented trade uncertainty and a record oil price shock. Ottawa, too, has taken actions to reduce the burden of higher prices on Canadians by temporarily eliminating the excise tax on oil. PM Carney is also working to diversify Canadian trade away from the US.

There will continue to be substantial frictions that limit the geographical diversification of trade sought by Ottawa. The US is Canada’s only neighbour; hence, there is a lack of alternative markets that equal the US in size and scale, and, before Trump, in shared values on free trade.

In his speech before the press conference today, Governor Tiff Macklem suggested that, “if the United States were to impose significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth. Alternatively, if oil prices continue to increase, and particularly if they remain elevated, the risk that higher energy prices become ongoing generalized inflation increases. If this starts to happen, monetary policy will have more work to do—there may be a need for consecutive increases in the policy rate.

It is highly unlikely that the Bank of Canada would tighten monetary policy when the housing market is as depressed as it is today.

Written by DLC Chief Economist Dr. Sherry Cooper

The headline inflation rate in Canada surged as expected with the War in Iran and the resulting oil price shock. The inflation rate hit 2.4%, up from 1.8% in February, tying for the highest in a year but a bit below market expectations of 2.5%. The surge reflected the initial impact of the war in the Middle East on Canadian consumer prices, as disruptions to tankers from the Persian Gulf triggered energy shortages worldwide. The consumer energy inflation swung to 3.9% from the deflation rate of 9.3% in the previous month, enough to raise transportation inflation to 3.7% (vs -0.8% in February). In turn, prices accelerated for shelter (1.7% vs 1.5%) and recreation and education (2.6% vs 0.5%). Meanwhile, base effects from the reintroduction of GST/HST taxes continued to impact food inflation, which fell to 4% from the 5.4% in February. The CPI rose 0.9% from the previous month, driven by a 21.2% surge in gasoline prices. Excluding gasoline, the CPI rose at a slower year-over-year pace in March (+2.2%) than in February (+2.4%). The CPI was up 0.9% month-over-month in March. On a seasonally adjusted monthly basis, the CPI increased 0.5%.

Higher energy prices drive up inflation

Energy prices rose 3.9% on a year-over-year basis in March, after decreasing 9.3% in February. On a monthly basis, energy prices rose 13.1% in March.

Higher gasoline prices were the primary driver of the year-over-year acceleration in the CPI, as consumers paid 5.9% more for gasoline in March than in the same month the previous year. Prices rose 21.2% in a month, the largest monthly gasoline price increase on record, driven by a supply shock from the conflict in the Middle East. However, this monthly effect was muted year over year due to the comparison with prices from March 2025, which included the since-removed consumer carbon levy. The removal of the consumer carbon levy will no longer impact the 12-month movement as of April 2026, and this will be reflected in next month’s CPI release.

Moderating the acceleration in energy prices were lower prices for natural gas (-18.1%), which are largely dependent on North American supply and therefore more insulated from global price changes.

Prices for food purchased from stores rose 4.4% on a yearly basis in March, after increasing 4.1% in February.

On a year-over-year basis, prices for fresh vegetables increased 7.8% in March, the largest increase since August 2023 (+8.7%), after rising 0.5% in February. Cucumbers, peppers and celery all had notable price growth in March, due in part to tighter supplies related to adverse growing conditions in producing countries.

Core inflation measures also came in below expectations, with core inflation hitting 2.0% and the CPI trimmed-mean 2.2% from a year ago, the slowest pace in five years, amid weak housing resales and smaller rent price increases.

Bottom Line

It is very good news that the inflation backdrop softened last month, before the onslaught of the Iran war and the oil price shock. Some of the weaker base effects will be evident in the March CPI data as well, mitigating the impact of soaring energy and commodity prices on this month’s headline inflation number.

The Bank of Canada and the U.S. Federal Reserve will remain on the sidelines at the next statement date on April 29, as a relatively quick end to the Iran war would keep a lid on inflation. President Trump has asked NATO countries to send warships to the Middle East to help open the Strait of Hormuz. The sooner the war ends, the sooner the oil price shock will dissipate. Given the uncertainty, the central banks will do best to keep their powder dry this time around, particularly given that labour markets in both countries have weakened substantially.

Written by DLC Chief Economist Dr. Sherry Cooper

As the days get longer and your flowers begin to bloom, there’s no better time to transform your house into your dream home. If you want to unlock your home’s full potential, here are six renovations that can boost both your lifestyle and property value.

Kitchen Transformation

Imagine having a kitchen that not only looks beautiful but also fits your lifestyle perfectly. A kitchen transformation can elevate your home, making it a space where you love to spend time. Whether it’s adding more storage, updating your appliances, or replacing your countertops, now is the perfect time to create the kitchen you’ve always dreamed of. In Canada, a mid-sized kitchen renovation typically ranges from $25,000 to $40,000. An investment that enhances your daily life, as well as your home’s appeal. You deserve a space that works for you.

Roof Replacement

Over time, weather and wear can take a toll on your roof, leading to leaks and potential damage. Replacing your roof this spring restores your home’s safety, boosts its curb appeal, and improves overall efficiency. With modern materials and improved insulation, a new roof offers long-term protection from the elements while reducing the likelihood of future issues. In Canada, the cost to replace the roof on a mid-sized home ranges from $10,000 to $20,000, an investment that offers renewed security and peace of mind for years to come.

Backyard Refresh

Why not turn your backyard into a personal oasis this spring? Whether you’re adding a new deck, fresh landscaping, or an outdoor kitchen, even small changes can make a big difference. Depending on the scope of the project, a new deck may cost between$5,400-$15,000, landscaping updates typically range from, $5,000 to $15,000 and an outdoor kitchen typically starts around $10,000. Whatever your budget, a thoughtful backyard makeover can create a welcoming space to relax and enjoy meaningful moments with family and friends throughout the season.

Siding and Paint Renewal

A siding or paint renewal can really bring new life to your home’s exterior. If your paint is fading or your siding is starting to look worn, it’s not just about looks, it can also leave your home more vulnerable to the elements. Updating with fresh paint or modern siding doesn’t just protect your home but also gives it a clean, refreshed look that you’ll love coming home to. On average, the cost of siding replacement for a mid-sized home ranges from $14,000 to $30,000, depending on materials chosen. Similarly, exterior painting typically costs between $3,000 to $9,000. It’s a simple change that makes a significant difference, especially with spring right around the corner.

New Doors and Windows

Sometimes, we don’t realize how old or worn-out doors and windows can affect the look and feel of our home. Updating them can instantly brighten up your space. A new front door, which typically costs around $3,900 for supply and installation, can instantly refresh your entryway. Replacing outdated windows, with an average cost of $15,000 to $35,000, can also improve natural light and energy efficiency. It’s amazing how these simple changes can make your home feel brighter, warmer, and more welcoming.

New Air Conditioner

You might have noticed that your air conditioning unit isn’t performing as well as it used to, and it may be time to start thinking about a replacement. A modern, efficient air conditioner not only keeps your home at the perfect temperature but also ensures you can enjoy hot days without worrying about your system struggling. On average, replacing an air conditioner in a mid-sized Canadian home costs between$3,500 to $8,500, depending on the type of system and installation requirements.

Renovations can be expensive, and it’s common to feel overwhelmed by the long list of updates you’d like to prioritize. With the CHIP Reverse Mortgage by HomeEquity Bank, these dream projects can become a reality. If you’re 55 or older, you can unlock up to 55% of your home’s equity in tax-free cash, with no monthly mortgage payments required, giving you the funds to complete transformative renovations just in time for spring.

Contact your Dominion Lending Centres mortgage expert to learn more about how the CHIP Reverse Mortgage can help fund your renovations without affecting your savings or monthly budget.

*Please note that all the numbers listed above are estimates and have been sourced from numerous websites. These figures are approximate as they may vary depending on different factors including province, time, market conditions, as well as regulations or policies. *

Written by My DLC Marketing Team