•Governor of the Bank of Canada, Tiff Macklem
Canada’s central bank held its key lending rate at 2.25 per cent today but warned the Middle East war will cause an inflation spike that may require action.
The decision marked the third consecutive hold by the Bank of Canada, which has said it wants to keep rates steady while the future of US-Canada trade is clarified, reports AFP.
But the war in the Middle East triggered by US and Israeli strikes on Iran has injected fresh uncertainty into Canada’s economic outlook.
“We know inflation is going to go up in the near term. We’ve all filled up our gas; we’ve all filled up our car; we’ve seen prices at the pump,” Bank of Canada governor Tiff Macklem told reporters.
Macklem noted that Canada’s central bank was prepared “to look through the immediate impacts” of the war before deciding whether to act but noted there was a risk of “persistent inflation” linked to the conflict.
“The longer the conflict lasts and the wider it gets, the bigger the risks,” he said.
Canada is a net oil and natural gas exporter, and so higher energy prices caused by the closure of the Strait of Hormuz will bring additional revenue for some Canadian businesses.
But Macklem warned the strait’s closure will reverberate across other parts of the economy.
“Oil and natural gas are not the only commodities that go through the Strait of Hormuz,” he said, citing other products like fertiliser.
“If they’re blocked, that will have other global impacts.”
For much of the past year, Canada’s central bank has cited US President Donald Trump’s trade policies as the main source of uncertainty for Canada’s economy.
US tariffs have suppressed Canadian growth and raised unemployment in targeted sectors like auto, steel, aluminium and lumber.
Trump has threatened to scrap a North American free trade agreement which is due for revision talks this year, and the Bank of Canada has warned a collapse in free trade with the United States could upend the economy.
“Uncertainty is high,” Macklem said. “We’re prepared to respond as needed.”
