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CA: BoC Monetary Policy Report
Highlights
In its January Monetary Policy Report, the BOC made little revisions to GDP growth expectations in 2026 and 2027 as it left its policy rate unchanged at 2.25 percent.
Despite added uncertainty related to the Middle East conflict, the BOC projects GDP growth to slow to 1.2 percent this year and 1.6 percent in 2027, little changed from 1.1 percent and 1.5 percent, respectively, in the January MPR.
"The conflict in the Middle East will affect the composition of growth, but the impact on overall growth is expected to be small because higher global oil prices increase the value of our energy exports even as they squeeze consumers and many businesses," Governor Tiff Macklem said in his opening press conference statement.
In the near term, GDP is expected to grow at an annualized rate of 1.5 percent both in the first and second quarters of 2026.
Projections assume lower U.S. tariffs on Canada due to a court order removing U.S. tariffs imposed under the International Emergency Economic Powers Act. The U.S. replaced them with a uniform 10 percent tariff. Now, the average U.S. tariff rate on imports from Canada is assumed at 5.1 percent, down from 5.8 percent in the January Monetary Policy Report.
On the inflation front, while projections for 2026 were revised up to 2.3 percent from 2.0 percent, the projection for 2027 remained unchanged at 2.1 percent.
Oil price assumptions were unsurprisingly revised higher. Brent oil prices are now assumed to be US$90 in the second quarter of 2026 and then settle around US$75 by mid-2027"as crude exports through the Strait of Hormuz resume".
While the BOC revised its near-term inflation projections higher, with April CPI seen rising 3 percent year-over-year due to gasoline and food prices, longer-term inflation expectations have remained anchored. Inflation is seen returning to the 2 percent target early next year.
The BOC projects the total CPI to rise 2.6 percent in the second quarter of 2026, up from 2.0 percent in the first quarter. Meanwhile, core inflation, measured by the average of CPI-trim and CPI-median, is projected to slow to 2.1 percent from 2.4 percent.
The nominal neutral interest rate is assumed at the midpoint of the 2.25 percent to 3.25 percent range, with risks"broadly balanced".
Definition
Since 2009 the Bank of Canada (BoC) has regularly updated its economic view via a quarterly Monetary Policy Report. This presents base-case projections for inflation and growth in the Canadian economy as well as an assessment of the risks. The forecast provides a platform upon which the monetary authority can base its decisions with regards to any changes in official interest rates (and/or unconventional monetary instruments).
Description
Each quarter, the MPR gives the financial markets a view of the BoC's governing council thinking. This provides important guidance especially since the BoC does not publish minutes from its policy setting meetings. The report is released at the same time as the policy announcement is made.