BMO Says Bank of Canada On Hold Until Inflation Risks Become Clearer

12:32 PM EDT, 03/18/2026 (MT Newswires) -- The Bank of Canada kept its key overnight lending rate steady at 2.25% on Wednesday for the third consecutive meeting as widely expected, said Bank of Montreal (BMO).

The tone of the press release and Governor Tiff Macklem's opening comments had a little bit of something for both the doves and the hawks, noted the bank. Since markets were leaning hawkish, with rate hikes priced in for later this year, a balanced statement could as such be read as mildly dovish.

The quick takeaway is that the BoC can afford to be patient over the near term, with economic slack and moderate underlying inflation trends now, but the inflation risks could build later this year if the conflict and elevated oil prices persist, pointed out BMO.

So, again, it all depends on how long the Iran conflict lasts and how persistent the strength in energy prices turns out to be, stated the bank.

Looking further out, BMO continues to believe the case for rate hikes is weak, given the overhang of trade uncertainty.

Like all central banks, the conflict in Iran has put the BoC in a tough spot, with growth risks tilted to the downside, while inflation risks have mounted, added BMO. The BoC suggests it's still too early to properly assess the net impact on the Canadian economy.

As a consequence, policy is on hold until there's more information on the duration and extent of the energy price shock. It's also clear that the BoC was more concerned about the outlook before the war, and would have been even more dovish in Wednesday's statement were it not for the spike in oil prices, according to the bank.

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