Bank of Canada Holds Key Rate at 2.25% Amid Elevated Energy Prices

The Bank of Canada left its overnight rate unchanged at 2.25% on Wednesday, in line with expectations. The bank rate stayed at 2.50% and the deposit rate at 2.20%. Officials pointed to weak domestic activity, U.S. trade policy uncertainty, the ongoing Middle East conflict, and high oil prices, while reaffirming their commitment to stop energy cost increases from turning into persistent inflation.

The Canadian dollar rose to session highs after the announcement before easing slightly, with USD/CAD at 1.3616, down 0.24%. Gold in CAD terms hit a low of 5,755.11 per ounce before the decision and later traded near 5,818.09, falling 2.09% on the day.

The BoC noted Q1 GDP contracted 0.1%, consumer spending grew 1.4%, yet government spending and housing declined. Inflation is seen hovering around 3% in the near term before easing toward 2%, with limited broad-based pass-through from higher energy prices so far.