Monday Market Minute | Mar 23, 2026

The Bank of Canada holds at 2.25% — boxed between a growth scare and a rising inflation risk

What Moved

The Bank of Canada held its policy rate at 2.25% on March 18, leaving the Bank Rate at 2.50% and the deposit rate at 2.20%. There was no Monetary Policy Report attached to this decision, so the statement itself carried the message — and the tone was cautious rather than committal. Governing Council is weighing two forces pulling in opposite directions. On one side, a genuine growth scare: fourth-quarter 2025 GDP contracted 0.6%, and February unemployment sat at 6.7%, evidence that the economy is stalling under the weight of trade disruption and softening demand. On the other, an inflation backdrop that is benign today but visibly tilting higher. February CPI came in at a comfortable 1.8%, but the energy shock radiating from the Middle East conflict that began in late February has started to feed through to gasoline and input costs. Faced with that split, the Bank chose the only move that commits to neither direction — it stayed put and signalled it is watching the downside. Call it "on hold, watching the downside": accommodative in posture, but unwilling to ease into an inflation risk it cannot yet size.

Why It Matters

The Bank is boxed. An energy-driven inflation risk blocks the rate cuts that a weakening labour market would otherwise justify, while soft growth and a fragile jobs picture rule out any move to hike. That leaves 2.25% as a floor the market can plan around — and for private credit, a higher-for-longer rate environment is a feature, not a bug. Floating-rate loan books and short-duration strategies continue to earn attractive absolute yields while public fixed income offers little compensation for duration. For leveraged borrowers, though, the hold confirms there is no near-term relief coming; refinancing math stays tight, and sponsors counting on a spring easing cycle to rescue stretched deals will have to wait. The wider the Bank's dilemma grows, the longer this plateau is likely to hold.

Signal to Watch

Oil is the swing variable. Watch whether the war premium persists and forces through the very inflation the Bank fears — a sustained crude rally would push a cut further out of reach even as growth falters. The next round of March data, landing over the coming weeks, will show whether the labour market is merely stalling or genuinely rolling over.