The Bank of Canada is holding its key lending rate at 2.25 per cent, blaming global uncertainty brought on by the U.S. and Israeli war in Iran.
The overnight rate will remain at 2.25 per cent, while the bank rate is 2.5 per cent, and the deposit rate is 2.2 per cent.
The global economy was expected to grow around 3 per cent before the war began on February 28. The war has brought that into question. The length of the war and its economic impacts remain uncertain.
Oil and gas prices have risen sharply, and the Bank of Canada expects global inflation to rise as a result. The bottleneck in the Strait of Hormuz could impact the world's supply of other commodities, including fertilizer ahead of the spring growing season. Global bond yields are up, equity market prices have dropped, and credit spreads have widened. The Bank says it's too early to assess the impact of the war in Iran on growth in Canada.
At the same time, the Canada-U.S. dollar exchange rates have remained stable.
Canada's economy grew by 2.4 per cent in the third quarter of last year, but contracted in the fourth by 0.6 per cent.
The Bank expects the Canadian economy to grow modestly as it adjusts to U.S. tariffs and continued uncertainty over trade policy. The labour market remains soft after employment gains in the fourth quarter all but disappeared in the first two months of this year.
Inflation in February continued to ease to 1.8 per cent, down from 2.3 per cent in January.
"We will continue to assess the impact of U.S. tariffs and trade policy uncertainty, and how the Canadian economy is adjusting. We are also monitoring the unfolding conflict in the Middle East closely and assessing its impact on growth and inflation," said a release from the Bank. "As the outlook evolves, we stand ready to respond as needed."
The next rate policy announcement is expected on April 29.
