The Bank of Canada kept its policy rate at 2.25%. Its projections showed stronger medium-term growth, despite weaker near-term momentum.
Inflation was revised up for 2026. Wage growth remained in the 3% to 3.5% range, and the economy was cooling but still leaving some price pressure.
Rate Path Depends On Data
Governor Tiff Macklem said there is no preset path for rates. He also said there is no “risk-free” policy choice and policy will depend on incoming data.
He said a further rate rise could be needed if energy prices stay high for longer. He also said existing slack in the economy should limit how much higher energy costs feed into wider prices.
Macklem said inflation expectations may be less anchored than before the COVID pandemic. He added that confidence in the Bank’s credibility remains intact.
Deputy Governor Carolyn Rogers said trade tensions pose a more persistent long-term risk than oil. She also said households remain highly sensitive to inflation.
Implications For Positioning
The Bank kept a wait-and-see stance. It kept the option of further tightening if inflation risks grow.
The Bank of Canada’s decision to hold rates at 2.25% signals that we should unwind any bets on imminent rate cuts. While the hold was expected, the upward revision to 2026 inflation suggests the path of keeping rates higher for longer is now the base case. This is a stark contrast to the market sentiment in late 2025, when many of us were positioning for at least two rate cuts by mid-2026.
The bank’s caution is justified by recent data, with the latest Statistics Canada report showing March 2026 CPI came in hot at 2.9%, beating expectations and reversing the cooling trend from earlier in the year. This sticky inflation is fueled by wage growth that remains stubborn at 3.4%, a level that continues to concern policymakers about service-sector inflation. Therefore, selling call options on BAX futures to bet against rate cuts seems like a prudent move.
This creates a potential policy divergence with the US Federal Reserve, which has recently sounded more open to a pause, strengthening the case for a stronger Canadian dollar. We should consider positioning for further downside in the USD/CAD pair, perhaps through buying put options to limit risk while capturing potential gains. The deputy governor’s focus on trade tensions as a persistent risk further supports being cautious on global growth, which could indirectly benefit the loonie against other currencies.
Given the Governor did not rule out another hike, we should prepare for increased volatility around upcoming data releases like employment and inflation reports. With WTI crude holding firm around $95 a barrel in April 2026, the conditional threat of tightening is very real and not just cheap talk. Buying straddles or strangles on bond futures could be a way to profit from the market’s uncertainty over the Bank’s next move.
