National Bank Says Bank of Canada Is Looking Through Inflation for Now

12:31 PM EDT, 03/18/2026 (MT Newswires) -- Neither Wednesday's monetary decision to hold interest steady nor the guidance that the Bank of Canada will "look through the war's immediate impact on inflation" comes as a big surprise, said National Bank of Canada.

Governor Tiff Macklem added that "immediate" is measured in months, not weeks.

With a high degree of uncertainty surrounding the war in Iran, it wasn't reasonable to expect the BoC to meaningfully alter its stance, noted the bank. Rather, this meeting was always going to be about how the Governing Council discussed the balance of risks, especially with an OIS curve that's pricing in rate hikes later this year.

The BoC pointed to rising upside global inflation risks, stated National Bank. While there were no new forecasts presented, the BoC acknowledged that higher oil prices will push up domestic inflation in the coming months.

Fortunately, going into the Iran war, "inflation [was] close to target and the economy [was] in excess supply," stated the governor. That helps contain the risk that higher energy prices quickly spread to the prices of other goods and services.

At the same time, the BoC stressed that inflation risks will grow the longer the conflict lasts and it "will not let their effects broaden and become persistent inflation." As a result, the policymakers "stand ready to respond as needed."

Overall, this was a largely as expected rate statement that doesn't meaningfully alter the rate outlook. The bond market tends to agree, as only modest moves were registered post-decision.

Based on National Bank's expectation for moderating oil prices over the course of 2026, it doesn't expect the BoC to hike this year. After the 2022 inflation miscalculation, the BoC's tolerance for inflation may not be as high as in the past, but underlying domestic conditions are different this time.

Indeed, a soft labor market, sluggish housing activity, moderating core inflation pressures, at least through February, and lingering trade risks all lean against market expectations for rate hikes this year, added the bank. Nonetheless, the war in the Middle East could force the BoC's hand if oil prices rise materially further, the increase is sustained and impacts begin to filter into core inflation and inflation expectations.

While not National Bank's base case, this is a risk that must be considered and one that the BoC openly acknowledges.

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