Bank of Canada holds interest rate steady as Iran energy shock drags on

The Bank of Canada held its benchmark interest rate unchanged at 2.25 per cent on Wednesday as the Iran war entered its third month, leading to a continued fog of uncertainty over the global economy.

This marks the fourth straight rate hold for the central bank since it delivered a 0.25 per cent cut in October 2025.

The central bank cited a “volatile” global economy in its decision on Wednesday, with the war in Iran and U.S. trade policy as “ongoing sources of volatility.”

“Financial conditions have been volatile, reflecting daily developments in the Middle East and shifting market expectations for inflation and interest rates,” the central bank said.

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“The Iran war has led to sharply higher energy prices and transportation disruptions, diminishing growth prospects in oil-importing countries and boosting inflation worldwide,” it added.

The price of Brent crude, which is the global benchmark, was around US$109 per barrel on Wednesday. The bank expects it to decline to around US$75 per barrel around mid-2027.

Iran has blockaded the Strait of Hormuz – the key waterway that accounts for 20 per cent of global oil supply – in response to U.S. and Israeli strikes on its territory. The blockade, combined with Tehran’s strikes on energy sites across the Persian Gulf, has led to a global fuel and energy crisis.

For Canadians, that has meant higher prices at the gas pumps and costlier groceries as Canada’s food suppliers started adding fuel surcharges to food deliveries.

Canada’s inflation rate inched higher to 2.4 per cent in March, compared with 1.8 per cent in February, led largely by fuel costs amid the Iran war and the closure of the Strait of Hormuz.

Excluding gasoline, though, the pace of inflation slowed to 2.2 per cent in March, compared with 2.4 per cent in February.

Food prices, however, soared in March. The prices of food purchased from stores rose by 4.4 per cent in March, compared with 4.1 per cent in February.

Fresh vegetables saw the steepest increase, with prices for fresh vegetables rising 7.8 per cent in March. This was a significant increase compared with February, which barely saw any increase in the price of fresh vegetables (0.5 per cent).