The Bank of Canada maintains interest rates and warns that surging energy prices will push up inflation.

The Bank of Canada announced on Wednesday that it would keep the benchmark interest rate unchanged at 2.25%, but warned that the rise in oil and natural gas prices triggered by the Iran war would temporarily push up inflation levels. Bank of Canada Governor Stephen Poloz said at the interest rate announcement press conference that the Canadian economy is facing multiple pressures. "The Canadian economy has already endured a lot, and now we are facing even greater volatility." The central bank pointed out that the current economic environment has significantly increased uncertainty, especially the impact of the Middle East conflict on the global energy market, which is changing the outlook for inflation and growth. The latest data shows that inflation in Canada fell in February. Data released by Statistics Canada shows that the inflation rate in February was 1.8%, lower than January's 2.3%, and close to the Bank of Canada's target level of 2%. However, the Bank of Canada emphasized that most of these data reflect the situation before the outbreak of the conflict. Poloz said that with the rise in oil prices, inflation data for March is likely to rise. Despite short-term upward pressure on inflation, the Bank of Canada chose to maintain the interest rate unchanged for the third consecutive time. The Bank had previously lowered the interest rate from 2.5% to the current level in October last year. Poloz pointed out that the central bank currently does not believe that the rise in energy prices will quickly a broad-based increase in commodity and service prices, so there is room to continue observing the overall economic trend. However, he also admitted that the current economic situation is presenting a complex situation of "slowing growth and rising inflation". Data shows that after the Canadian economy grew by 2.4% in the third quarter of last year, it contracted by 0.6% in the fourth quarter. After entering 2026, although the economy has resumed growth, the growth rate is lower than the Bank of Canada's previous expectations. At the same time, the labor market is weakening, with the unemployment rate rising to 6.7% in February, and export data also showing weakness. Changes in energy prices are particularly crucial. The Bank of Canada had previously assumed in January that oil prices would be $60 per barrel, while current oil prices have risen to nearly $100 per barrel. Poloz said that the rise in oil prices will directly pressure inflation, while also squeezing consumer disposable income and suppressing other consumer spending. Bank of Canada Senior Deputy Governor Carolyn Rogers said that the rise in energy prices may also transmit to food prices through transportation costs. As Canada relies heavily on imported fresh food, the rise in transportation costs will further push up food inflation. In addition, disruptions to transport through the Strait of Hormuz may also affect the supply of various commodities, including fertilizers, exacerbating supply chain pressures. In the financial market, the Bank of Canada pointed out that recent global stock market weakness, widening credit spreads, and rising bond yields all reflect market concerns about economic prospects. Meanwhile, the performance of the Canadian real estate market has been weaker than previously expected, which is also an important consideration for the Bank when formulating policies. Despite the challenges, Canada, as a net energy exporter, also benefits to a certain extent from the rise in oil prices. Higher energy export income helps support the economy and enhance the stability of the Canadian dollar. Poloz said that compared to other countries, Canada's overall situation remains relatively robust. Looking ahead, the Bank of Canada will closely monitor the balance between inflation and economic growth. Poloz stressed that the central bank cannot influence the war itself, but will ensure that the rise in energy prices does not evolve into persistent, widespread inflationary pressures. The Bank of Canada's next interest rate decision will be announced on April 29, along with the latest Monetary Policy Report.