Bank of Canada Keeps Rates On Hold As It “Looks Through War’s Immediate Impact On Inflation” As expected, the Bank of Canada – which was the day’s first G5 central bank to hit the tape ahead of the Fed’s decision at 2pm ET – held interest rates unchanged at 2.25% as expected, saying adjustments to borrowing costs would likely be small if the economy and inflation evolve as expected, while stating that it is looking through the war’s immediate impact on inflation but will not let higher energy prices become persistent inflation. “A policy rate close to current settings looks appropriate to support adjustment in the economy and return inflation to target,” BOC Governor Tif Macklem said adding that “There may still be a need to adjust the policy rate depending on how the risks evolve. But if the economy evolves broadly in line with the base case, changes in the policy rate can expected to be small.” At the same time, officials flagged major risks to their outlook, including a review of the North American trade deal, the conflict in the Middle East and ongoing damage from the impacts of US tariffs, which could all require different responses for monetary policy. Macklem explicitly outlined how officials may have to adjust borrowing costs more significantly in some scenarios. He noted that while additional US trade restrictions could prompt cuts to the policy rate, rising and persistently elevated energy prices would lead to tightening. “If oil prices continue to increase, and particularly if they remain elevated, the risk that higher energy prices become generalized inflation increases,” Macklem said. “If this starts to happen, monetary policy will have more work to do — there may be a need for consecutive increases in the policy rate.” Macklem said Canada is being buffeted by global events and geopolitical uncertainties, higher global energy prices are pushing inflation up, and monetary policy is focused on ensuring jump in energy prices does not turn into persistent inflation The governor said the BOC has three key messages: Canada is being buffeted by global events and geopolitical uncertainties, but our…​Read More