Key insights
- The Bank of Canada will rely more on judgment due to global uncertainty, holding rates steady at 2.25%. The Iran war's impact on inflation is uncertain, but a persistent rise would trigger a response. Economic growth and jobs have weakened amid trade uncertainty. Markets anticipate two rate hikes in the second half of the year. The BoC's cautious approach and sensitivity to geopolitical risks could indirectly influence Fed policy, but the direct impact on US equities is limited.
Investing.com -- The Bank of Canada’s governing council will depend more heavily on judgment than usual for rate decisions due to heightened global uncertainty, according to minutes released Wednesday.
The central bank maintained its benchmark rate at 2.25% on March 18. Governor Tiff Macklem said the council would look through the Iran war’s immediate impact on inflation but would respond if inflation became persistent.
The Iran war sent benchmark crude oil prices soaring and raised concerns about a broader spike in inflation.
The seven-member rate-setting council said it was too early to determine the long-term effect of the conflict.
"They acknowledged that they would need to rely on judgment more heavily than usual and take a risk management approach to monetary policy," the bank said in a summary of deliberations.
"They agreed to keep options open while closely monitoring the unfolding conflict in the Middle East, US trade policy and incoming data," the summary said.
The central bank has kept its policy rate at the lower end of its neutral level since October. Inflation has stayed around the mid-point of its target control range of 1% to 3% for almost a year.
The council said that given inflationary pressures appeared to be muted, they had some flexibility when it came to rates and "could therefore take some time to see how the war in Iran evolved and what it meant for the outlook".
Economic growth and the job market have weakened in recent months amid trade uncertainty and a planned review of the United States-Mexico-Canada free trade deal.
Members agreed that the energy price shock caused by the war in Iran would push inflation up in the near term, but at this early stage, its impact on the economy was uncertain.
Money markets are pricing in two hikes in the second half after President Donald Trump signaled the conflict could end in two to three weeks.
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