Bank of Canada Holds Interest Rates but Signals Potential Consecutive Increases

Canada’s interest rate outlook remains uncertain as global tensions and rising oil prices reshape inflation expectations. Following its latest announcement, the Bank of Canada opted to hold interest rates steady, but signalled that consecutive increases could be on the table if inflationary pressures persist. With the Canada CPI March 2026 data showing a recent uptick, markets are watching closely for the central bank’s next move.

What Is Canada’s Interest Rate Currently?

On April 29, the Bank of Canada announced it was holding its key lending rate at 2.25%. This represents the fourth consecutive time Canada’s central bank has kept the rate at this level. It delivered a 0.25% cut back in October 2025.

The Bank of Canada held interest rates at 2.25% mostly due to the war in Iran, which has clouded the outlook for the Canadian and global economy. The central bank also noted that near-term rate changes could remain modest if economic projections hold.

In February, Canadian inflation eased to 1.8%. However, after the war in Iran began on February 28 and disrupted global oil supply, energy prices surged—pushing inflation up to 2.4% in March, with projections of three percent in April.

Inflation is expected to decline to the central bank’s target of two percent in early 2027.

That inflation target is contingent on the price of oil declining to US$75.00 per barrel in mid-2027 and U.S. tariffs remaining at their current levels.

The war in Iran has sent oil and gas prices soaring. Brent crude, the global benchmark, is around US$115.00 per barrel. In late February, it was US$70.00 per barrel. West Texas Intermediate (WTI) crude oil, the North American benchmark, has experienced similar gains. After hitting US$65.00 per barrel in late February, WTI crude now costs US$106.00 per barrel.

That big increase has resulted in near-record-high prices for gasoline. Of course, higher gas prices mean Canadians could pay an extra $1,600 at the pumps in 2026. It’s easier to cut back on our everyday spending than curb our driving habits, so that extra expense reduces disposable income and discretionary spending, which slows economic growth.

This highlights the impact of oil prices on inflation in Canada, as rising energy costs continue to put upward pressure on consumer prices and complicate the central bank’s path forward.

Should the war in Iran continue or uncertainty remain, oil prices could continue to rise. Even if the U.S. and Iran reach a deal to reopen the Strait of Hormuz, it would still take at least two months before North American drivers could see a significant decrease in the price of gas.

Could the Bank of Canada Announce Two Consecutive Interest Rate Hikes?

Prolonged higher oil and gas prices could force the Bank of Canada to take a different approach on interest rates. Bank of Canada Governor Tiff Macklem stated that if the price of oil continues to climb, the central bank may need to implement “consecutive increases.”

“If energy prices go higher, and particularly if they stay higher for longer, there could well be a need to increase the policy rate to get inflation back to two per cent,” Macklem said. “There may be a need for consecutive increases in the policy interest rate.”

Even that sentiment could change. If upcoming trade talks over the Canada-U.S.-Mexico (CUSMA) trade agreement goes poorly this summer and the U.S. imposes onerous new trade restrictions, the Bank of Canada may need to cut interest rates to energize economic growth.

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