The Bank of Canada held its policy rate at 2.25% for the fifth consecutive meeting. The April Monetary Policy Report (MPR) is the first to incorporate the Middle East conflict alongside the ongoing tariff/CUSMA overhang.
The forecast.
- The Bank’s April outlook assumes tariffs remain unchanged and the oil prices decline to US$75 per barrel by mid-2027
- CPI is expected to peak around 3% in April, then ease back to the 2% target by early 2027.
- GDP forecast little changed from January: 1.2% in 2026, rising to 1.6%–1.7% in 2027–28, with the positive impact of higher oil prices on exports expected to be offset by the squeeze on consumers and businesses.
The interesting bits.
- The Bank laid out two ‘reaction functions’ with unusual candour: consecutive hikes if energy prices spark persistent inflation; cuts if CUSMA talks go sideways.
- Excess supply is the BoC’s shield right now. With the output gap around -1% and labour markets soft, businesses are absorbing cost pressures rather than passing them through. Macklem explicitly drew the contrast with 2021–22, when an overheated economy amplified every supply shock.
Looking ahead.
- Monetary policy is dependent on the outcome of the CUSMA negotiations and the path of oil prices.
- If the BoC’s assumptions of positive trade negotiations and lower oil prices materialize, we view the Bank’s next move as a modest hiking cycle (i.e., 50-75 bps). The question is one of timing: the bond market is pricing in hikes starting this fall, whereas we see this likely as a 2027 story.
