Desjardins Says Bank of Canada Faces Surging Global Energy Prices, Weakening Domestic Economy

10:28 AM EDT, 03/18/2026 (MT Newswires) -- The Bank of Canada held the policy rate steady again on Wednesday at 2.25%, but flagged that risks to economic growth are tilted to the downside while risks to inflation are tilted to the upside, said Desjardins.

Overall, the suite of communications released alongside the rate decision was largely balanced, if not tilted toward a dovish view, noted the bank. Central bankers discussed the upside risks to inflation and the potential economic boost from higher oil prices.

However, they went on to emphasize the recent deterioration in the labor market, the tightening in financial conditions and the pain that many households and businesses will feel from higher energy prices, pointed out Desjardins. The Governing Council concluded that, "With inflation close to target and the economy in excess supply, the risk that higher energy prices quickly spread to the prices of other goods and services looks contained."

Given that the BoC's January forecasts look completely stale now, the Governing Council removed the reference to the current policy rate remaining appropriate if the outlook evolved in line with its projections.

Overall, it's difficult to have much confidence about how the economy and inflation evolve, added Desjardins. Markets haven't moved all that much on the rate announcement, with implied pricing still pointing toward one hike for this year.

As a result, Desjardins continues to expect the BoC will leave the policy rate unchanged for the duration of this year.

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