The Bank of Canada is set to update interest rates on Wednesday as the Iran war brings a dark cloud over the Canadian economy and as Ottawa prepares to release a fiscal update sometime this spring.
Oil price spikes globally have quickly led to higher gas prices for consumers, and economists expect inflation to tick up in the coming months. This means just about everything else is about to get more expensive for consumers and businesses alike.
“Whether it’s uncertainty or actual smoke, there’s a dark cloud hanging over the global economy thanks to the Iran war,” said Clay Jarvis, a mortgage expert at NerdWallet Canada, in a note.
“It’s fair to wonder if a rate cut would even move the needle for consumers and businesses; the current economic/political climate doesn’t feel all that hopeful.”
The Bank of Canada has a mandate “to promote the economic and financial welfare of Canada.”
To do this, one of its key goals is to maintain price stability by keeping the annual inflation rate between two and three per cent.
Other economic gauges the Bank monitors closely include the perceived strength of the job market and the rate at which the economy is expanding, as measured by gross domestic product (GDP).
To help achieve its mandate, the Bank of Canada’s main tool is adjusting monetary policy, or interest rates. This effectively changes the cost of borrowing money for consumers and businesses.
If inflation gets too high, then raising interest rates usually slows down the rate at which prices are increasing, while inflation getting too low means the economy could contract and even enter a recession. This would likely result in cutting rates to encourage more business activity and job hiring.
Getting monetary policy aligned with the immediate needs of Canada’s economy is a fine balancing act that the Bank of Canada’s governing body discusses on a regular basis at monetary policy meetings.
“Cutting the overnight rate right before a possible spike in inflation would be terribly uncharacteristic of one of the world’s most risk-averse central banks.”
Wednesday’s announcement will follow the Bank’s second meeting of the year, and several weeks into the Iran war. Although inflation in February cooled to 1.8 per cent, that was mostly before the war sent oil and gas prices skyrocketing.
Get breaking National news
Get breaking Canada news delivered to your inbox as it happens so you won’t miss a trending story.
“Canada’s inflation cooled in February, but that is backward-looking now that prices at the pump have skyrocketed in the wake of the U.S./Israeli war with Iran. We expect higher energy costs will lift headline inflation close to three per cent in the months ahead,” said Leslie Preston, managing director and senior economist at TD Bank, in a statement.
“The Bank of Canada’s interest rate decision is coming up on Wednesday, and the Bank is universally expected to remain on pause. We will be listening closely for the Bank’s assessment of the impact of the oil shock on Canada’s economy.”
The Bank of Canada has not changed its benchmark interest rate since the quarter percentage point cut to 2.25 per cent on Oct. 29, 2025. Following the announcement last year, Governor Tiff Macklem said rates are “at about the right level.”
Although many economists expect the Bank of Canada to continue taking a wait-and-see approach, higher inflation as a result of price shocks stemming from the Iran war could add pressure to the central bank the longer the conflict goes on.
“We suspect policymakers will look past the oil-driven rise in prices and remain wary of economic risks until the fog from both the Iran war and the trade war lifts.”
Wednesday’s rate announcement also comes just a few weeks before the end of the federal government’s fiscal year on March 31, and it’s expected to provide an economic update shortly after. This follows the Budget 2025 released in November, which marked a new timeline for budget and fiscal update releases.
By pushing the budget release from the spring to the fall, the economic update now occurs in the spring.
This means Ottawa will be expected to show Canadians how its spending plans outlined in the budget have been coming along and if they are on track to meet their goals.
Global News sent the Department of Finance a request for when the spring economic update will be delivered.
“The upcoming economic update will proceed as scheduled in the spring. The exact date will be announced in due course,” said John Fragos, press secretary for the minister of finance and national revenue in response.
Doug Porter, chief economist at the Bank of Montreal, says even with the potential of higher inflation on the horizon, the Canadian economy still needs room to grow.
“Trade talks have finally restarted again after a four-month pause, but there are no guarantees of success. Against that backdrop, we look for the Bank of Canada to keep interest rates steady for an extended period, even as inflation temporarily flares higher on the oil price spike. “
© 2026 Global News, a division of Corus Entertainment Inc.
