Rate pause keeps borrowers in limbo as oil shock clouds the outlook
The Bank of Canada’s decision to leave its policy rate at 2.25% in April keep mortgage rates anchored but underscores just how finely balanced the outlook has become for inflation, growth and housing.
Economists see a central bank boxed in by oil‑driven price pressures on one side and persistent economic slack on the other.
CIBC Capital Markets chief economist Avery Shenfeld described the Bank as “standing on guard for thee” against both elevated inflation and “sluggish growth and excessive slack.” He said that two‑way risk justifies keeping rates frozen.
He pointed to the Bank’s forecast that oil prices would gradually fall toward US$75 per barrel by mid‑2027, lifting near‑term inflation. Even so, the broader growth profile would remain “little changed” from January, with the output gap still putting downward pressure on inflation well into 2028.
While headline inflation has been pushed higher by the latest oil shock, the Bank see “little evidence” so far of a spillover into core measures and stressed it “will not let higher energy prices become persistent inflation.”
Shenfeld noted that the Governing Council highlighted both the level and persistence of oil prices, as well as whether they spread into other prices, as key to any future move.
The Bank of Canada may be entering an extended pause as global risks cloud the outlook. Sal Guatieri of BMO Capital Markets indicated rates could remain unchanged for a prolonged period, with inflation and geopolitical uncertainty shaping future decisions.https://t.co/j3Mw3xsCMf
— Canadian Mortgage Professional Magazine (@CMPmagazine) April 29, 2026
For David‑Alexandre Brassard, chief economist at CPA Canada, that caution is appropriate. “Oil prices are significantly higher than before the conflict, but there’s still considerable uncertainty around how long this will last,” he said.
“With no clear resolution around key supply routes like the Strait of Hormuz, a wait‑and‑see approach is warranted.”
Brassard emphasized that the latest bump in headline inflation does not yet amount to a new spiral.
“This is still a bump in prices rather than a broad‑based inflation problem,” he said.
“Core inflation has been easing, and weak demand in Canada should help limit broader price pressures.”
Rising rates in response to a temporary oil shock, he warned, “could do more harm than good.”
Oxford Economics senior economist Michael Davenport also judged the hold to be widely expected, but underlined how conditional the path ahead has become.
The Bank’s Monetary Policy Report assumed oil prices would fall back toward US$75 and inflation would peak near 3% in the second quarter before returning to target next year.
Davenport said the Bank is “still leaving the door open to adjust rates in either direction,” with the Middle East conflict and looming United States–Mexico–Canada Agreement (USMCA) review as swing factors.
“Our read of the tea leaves suggests the BoC thinks that excess supply in the economy makes a persistent rise in inflation unlikely,” he said.
For a hike this year, he added, the Bank would need to see “a sustained rise in core inflation above its 1‑3% target range and rising long‑term inflation expectations,” outcomes he described as improbable.
Davenport’s baseline is that higher energy prices and trade uncertainty would keep the Bank on hold through 2026, before gradually lifting the policy rate back toward its 2.75% neutral estimate by mid‑2027.
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