Bank of Canada holds rate at 2.25% as weak growth collides with energy inflation risks

The Bank of Canada held its overnight policy rate at 2.25% on April 29, as an anemic domestic economy pulls inflation lower, while surging gasoline prices signal upside price pressures.

"The evolving conflict in the Middle East is causing heightened volatility and US trade policy continues to reshape global trade patterns," says Governor Tiff Macklem in this morning’s address. "Both are ongoing sources of uncertainty."

The decision itself was widely expected. The tension and layered uncertainty behind it was not. 

A stuttering economy has kept domestic inflation in check

Economic momentum in Canada remains subdued from a slew of factors. Hiring has stabilized but not strengthened. Consumer confidence is fragile. Uncertainty tied to trade, geopolitics, and population growth continues to restrain business and household spending.

Ali Jaffery, chief economist and partner at KPMG Canada and a former principal economist at the Bank of Canada, says policymakers all share the view that the economy “isn’t in a great place”. Growth, he says, is “pretty anemic right now”, leaving weak demand to keep domestic price pressures contained.

Andrew Grantham, senior economist at CIBC, says a faltering labour market is helping cool domestic inflation—the area where the central bank has the most influence.

“The unemployment rate is higher than we would want it to be,” he says, adding that softer labour market conditions are dampening inflation pressures.

Employment rose by 14,000 in March, recouping only a fraction of February’s losses. But the unemployment rate held at 6.7%.  

“We’re not necessarily seeing job losses anymore, but we’re also not seeing much hiring,” Grantham says. What is evident is the weakness in labour demand.

Core inflation reflects that softness. CPI‑median held at 2.3% in March, while CPI‑trim eased to 2.2%. “When you strip out food and energy, underlying inflation was pretty tame and soft,” says Jaffery.

Learn more: 5 expenses that will cost Canadians more in 2026 

Spiking gasoline prices send inflation higher 

Easing domestic prices are being offset by a sharp rise in energy prices.

Canada’s annual inflation rate rose to 2.4% in March, up from 1.8% in February, almost entirely from a run up in gasoline prices. Gasoline jumped 21.2% month over month after the U.S. – Iran conflict disrupted oil shipments through the Strait of Hormuz. Roughly one-fifth of global oil supply passes through the narrow sea corridor.  

“The first thing, and the bank will very rightly be concerned about, is this geopolitical energy shock,” Jaffery says. While the BoC has little control over global fuel markets, it closely watches whether sustained gasoline price increases begin to influence inflation expectations and spill into other categories.

Grantham says policymakers are already alert to that risk.

“They know that inflation is going to accelerate further given what’s happening with gasoline prices,” he says. Energy costs often bleed into other parts of the inflation basket.

Read more: Mortgage expert alert: Will the Iran War and rising inflation offer a buying opportunity in 2026?

Housing activity remains muted as uncertainty outweighs easing conditions

Home values in parts of Ontario and B.C. have dropped 10–20% from recent highs, according to Steve Garganis, lead mortgage planner at Mortgage Architects and founder of CanadaMortgageNews.ca. Some high‑rise condo segments recorded even steeper price declines.  

Even so, softer pricing and lower rates have not been enough to reignite housing demand.

Labour market and economic uncertainty are feeding directly into housing behaviour. “People are not engaged in the housing market,” says Jaffery, pointing to concerns about job prospects as the key constraint.  

Uncertainty in tariff‑exposed industries, potential job cuts in parts of the federal public service, and tighter immigration policy is keeping many homebuyers on the sidelines. 

Spring mortgage market update: Renewals rise as rate relief is limited

Fixed mortgage rates remain under pressure from bond yields, even as the Bank of Canada holds its policy rate steady. Recent volatility in global energy markets has pushed bond yields higher, which directly raises fixed mortgage rates.  

Even so, Rates.ca mortgage data shows borrowers continue to favour fixed‑rate products. Fixed-rate borrowings account for roughly 80% of all mortgage quotes in early 2026, while interest in variable rates remains subdued since November of last year.  

Rates.ca data also indicates a growing preference for shorter fixed terms, particularly three‑year mortgages.

The pattern suggests borrowers are prioritizing near‑term payment certainty while avoiding longer term commitments amid uncertainty about the trajectory of interest rates.

Read more: What type of mortgage and term should you get? 

Renewals—not purchases—are driving mortgage activity

Mortgage activity is being driven increasingly by renewals rather than new home purchases, as a large cohort of borrowers comes off Covid19-era rates.  

“Over 40% of all mortgages are coming up for renewal,” according to Garganis. Roughly 1.2 million mortgages are expected to renew at higher rates in 2026.  

Intent‑based data from the Rates.ca mortgage quoter reflects that shift. Renewals accounted for about 60–65% of all mortgage quotes in the first quarter of 2026, while home buying remains comparatively subdued.

CIBC’s Senior Economist, Grantham says the renewal shock is shifting in nature in 2026. While fewer mortgages are resetting this year than in 2025, those renewing face much larger increases relative to their original rates.

While the aggregate impact on the economy will still be negative, according to Grantham, "it is much more focused on a certain percentage of individuals rather than the broad‑based increase we saw in 2025.”

For policymakers, that distinction matters. Mortgage renewals tend to weigh more heavily on consumer spending than on housing demand itself, as households prioritize meeting higher payments by cutting back elsewhere. “Going from a 2% to a 4% mortgage rate is going to reduce disposable income. This means fewer trips out for dinner and less spending in every area of our economy,” says Garganis.      

According to Grantham, the BoC is unlikely to cut rates further this year unless there is clear evidence that the shock of higher mortgage payments is restraining consumer spending more than expected.

Related: Mortgage amortization: Should you go long or short? 

Mortgage arrears are rising—but unevenly across Canada  

Mortgage delinquency rates across various Canadian markets remain low compared to historical norms—around 0.27% nationally as of January 2026. In the country’s most expensive housing markets, however, pressure is building.

In Toronto and Vancouver—where borrowers tend to carry larger mortgages—delinquency rates have begun to creep above pre‑pandemic levels.  

Grantham views mortgage renewal data in those markets as indicative of arrears likely to climb a little higher before stabilizing in 2027.

So far, there is little evidence of widespread forced selling. Instead, Granthan says the renewal shock is showing up more clearly in reduced household spending rather than a surge in listings. 

Where do rates go from here?  

With the economy under strain and inflation risks tied to energy, Garganis says policymakers have little room to move in either direction.

“There’s no sugar‑coating it—our economy is in trouble,” Garganis says.  

Jaffery agrees, saying the Bank of Canada is likely to hold rates steady for the rest of the year as it balances opposing forces. Until greater clarity emerges around energy markets, the Middle East conflict, domestic economic momentum, and ongoing U.S.–Canada–Mexico trade talks, policymakers are unlikely to move rates in either direction—a process that could take months to unfold.

Against that backdrop, Governor Macklem said the Governing Council is looking past the war’s immediate impact on inflation while remaining firm that "persistent" higher energy prices must not become entrenched. “As the outlook evolves, we stand ready to respond,” he said, with potential for a set of consecutive rate hikes, reiterating the Bank’s commitment to price stability.

Read next: Ask the mortgage expert: How to buy a home in 2026, between budgets, builders, and opportunities