Locations
UPDATED: The Bank of Canada (BoC) held the overnight interest rate at 2.25 per cent, as it monitors the impacts of the war in Iran and Canada’s slowing economy.
The cautious move underscores the uncertainty at the moment, where an unstable energy market has led to rising gasoline prices just as CPI inflation fell to 1.8 per cent in February from 2.3 per cent in January.
The breadth and duration of the conflict in the Middle East, and its economic effects, are “highly uncertain,” the BoC said in its Wednesday morning announcement. “It’s too early to assess the impact of the conflict in the Middle East on growth in Canada.”
It also noted Canada’s flagging economy. The country’s GDP contracted by 0.6 per cent in Q4 2025, leading to an overall growth of 1.7 per cent in the year — the slowest pace of annual growth since 2020.
The BoC noted housing markets remain “weak,” contributing to the flagging economy even with a rise in consumer and government spending. Canada’s labour market was described as “soft,” with the unemployment rate rising to 6.7 per cent in February. The review of the CUSMA trade agreement also remains a question mark.
“We continue to expect the Canadian economy to grow modestly as it adjusts to U.S. tariffs and trade policy uncertainty,” the BoC said, “but recent data suggest that near-term economic growth will be weaker than anticipated in January.”
Inflation is near the target range and the economy is in excess supply, the BoC's governor Tiff Macklem said in the morning announcement, so the risk of higher energy prices quickly spreading to other goods and services is contained for now. But the risks could grow if the conflict in the Middle East expands and intensifies, he added.
Rate pause expected by industry
Real estate investors and developers are likely to see a pause on the interest rate as a signal of “stability more than stimulus,” Shubha Dasgupta, CEO of Pineapple Financial, said in an emailed statement to RENX Homes.
The BoC’s decision should support sentiment and planning, he added. While it would not address housing affordability, confidence often turns before activity, Dasgupta said, and the current environment may have the conditions to start reopening conversations around acquisitions, refinancing and selective development opportunities.
While he expected the BoC to hold the overnight rate, there is a question of whether interest rates could be hiked later this year, Mark Fieder, president of Avison Young Canada, said in an emailed statement to RENX Homes.
"This would not be surprising although, naturally, I would rather see interest rates lower, to stimulate investment opportunities – particularly in higher-performing sectors like multifamily, industrial and retail."
Macklem highlighted the challenge of navigating the moment, where the BoC must balance keeping inflation within its target range while growing the economy.
Like the BoC, the U.S. Federal Reserve announced it would leave interest rates unchanged because of similar concerns over soaring energy costs due to tensions in the Middle East.
Industry Events
Locations
