This is an account of the Bank of Canada’s Governing Council deliberations leading to the monetary policy decision on April 29, 2026.
This summary reflects discussions among members of Governing Council during stage three of the Bank’s monetary policy decision-making process, after members received all staff briefings and recommendations.
Governing Council’s monetary policy decision meetings began April 21, 2026, with Governor Tiff Macklem presiding. Members present were Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent and Michelle Alexopoulos.
International economy
Governing Council began by discussing the impact of the war in the Middle East on the global economy and inflation. The conflict had led to a sharp increase in global oil prices and heightened volatility in global energy and financial markets. Growth prospects had deteriorated for many countries, particularly those that are heavily reliant on oil and natural gas imports. Higher energy prices had boosted inflation in countries around the world.
In the United States, growth was expected to remain solid in the first quarter. Households continued to spend despite higher gasoline prices, and investment in artificial intelligence (AI) remained strong. Members noted that the US labour market had been relatively stable, with few layoffs but weak hiring. Inflation had held steady at just under 3% in the period before the war started and had moved up further with the increase in gasoline prices.
In China, in the near-term the economy appeared relatively insulated from the war in the Middle East. Robust exports continued to support growth, offsetting modest domestic demand.
The economy in the euro area had been showing signs of resilience before the start of the war. But higher oil and natural gas prices and the potential for energy shortages were likely to weigh on growth.
The global benchmark price of oil was volatile and above US$100 per barrel at the time of the April Monetary Policy Report. Consistent with the oil futures curve, members’ baseline assumption was that oil prices would decline in the coming quarters. They noted, however, that there was considerable uncertainty around this assumption due to the unpredictable path of the war. Several other commodity prices had risen in recent months, in part due to the closure of the Strait of Hormuz. Copper and aluminum prices had increased, as had the prices of some agricultural products. Gold prices had declined.
Governing Council members discussed how financial markets had been surprisingly buoyant given the geopolitical situation. Equity markets had rebounded, in part due to strong corporate earnings. Members noted that financial vulnerabilities—including private credit market stress and the disruptive impacts of AI on software companies—had not materially affected financial conditions more broadly. Bond yields were higher since the start of the war in the Middle East, but because they had eased prior to the war, changes since the January Report were modest. The US dollar had appreciated against most major currencies since the January Report, while the Canadian dollar had traded generally near 73 cents US.
Canadian economy and inflation outlook
After contracting in the fourth quarter of 2025 owing to a very large drawdown in inventories, members expected growth to have resumed in the first quarter of 2026. At the start of the year, indicators had been on the weak side, pointing to some downside risk to the forecast for first-quarter growth in the January Report. But more recent indicators had been solid, suggesting that growth in the first quarter would be close to the January forecast.
Growth in domestic demand was concentrated in consumer and government spending, with a small contribution from business investment. US sectoral tariffs and trade policy uncertainty were continuing to hold back business investment and exports. Despite uncertainty around forthcoming negotiations of the Canada-United States-Mexico Agreement (CUSMA), results of the quarterly Business Outlook Survey (BOS) showed some improvement in sentiment, returning to levels seen before the United States imposed tariffs. Businesses surveyed reported stronger expectations for sales growth and investment. Members noted that the BOS results in recent quarters have been a good forward indicator. Businesses expected the war in the Middle East to raise costs but acknowledged that soft demand was limiting their ability to fully pass on those costs.
Members discussed the weakness in the housing market. They agreed that cyclical factors were weighing on activity, including heightened uncertainty. But the weakness also stemmed from structural forces, such as slower population growth, lower demand from investors and imbalances between supply and demand that were driving ongoing affordability challenges. Members agreed that the move to a more balanced housing market—with enough affordable homes well suited to Canadians’ needs—would take time.
Members noted that the labour market remained soft. Job growth had slowed, and the job finding rate was low. Slower population growth was limiting labour force growth, while population aging was contributing to a decline in labour force participation. The unemployment rate had remained in a range of 6.5% to 7% for several months.
Inflation had been close to 2% for more than a year and a half. However, in March, consumer price index (CPI) inflation rose to 2.4% because of the spike in gasoline prices. This followed several months of slowing inflation. CPI-trim and CPI-median had been easing and pointed to downward momentum in inflationary pressures. This was consistent with excess supply and a soft labour market. But members noted that inflation in some components of the CPI—notably rent and food—remained elevated. Overall, the share of CPI components rising above 3% had declined and the share of components with inflation rates lower than 1% had increased. While higher energy prices had affected some components, such as air travel, members agreed there was little evidence so far that higher energy prices were spreading more broadly to other goods and services. With higher gasoline prices and inflation in food prices still elevated, near-term inflation expectations had risen but long-term inflation expectations remained well-anchored.
Governing Council agreed that their outlook for growth and inflation in Canada was highly conditional on US tariffs remaining unchanged and on lower oil prices, which would depend on developments in the war in the Middle East.
Members expected gross domestic product (GDP) to grow 1.2% in 2026, then to strengthen to 1.6% in 2027 and 1.7% in 2028. The pickup in GDP growth over the projection horizon reflected a gradual rise in exports and business investment. With growth rising slightly above potential output growth, the current slack in the economy is gradually taken up over the projection horizon.
Inflation was expected to rise to about 3% in April before easing back to the 2% target in early 2027, largely reflecting the anticipated decline in global oil prices.
The war in the Middle East was having a significant impact on the near-term inflation outlook, but Governing Council members expected the overall impact on growth to be small. While higher oil prices dampen spending as businesses and households are squeezed by higher energy costs, they also increase Canadian export revenues. These effects on different parts of the economy would shift the composition of growth, but Governing Council’s outlook for overall GDP growth remained broadly unchanged from the January Report.
Considerations for monetary policy
Members discussed what recent economic developments implied for the current stance of monetary policy.
The Canadian economy faced two main risks: trade relations with the United States and the evolving war in the Middle East. Members agreed that uncertainty was elevated and that developments on both fronts could have a material impact on the inflation outlook, depending on how events unfolded and how shocks spread through the economy.
On trade, members agreed they could not lose sight of risks to growth from uncertainty around US trade policy and the ongoing restructuring in the economy. If the United States imposed significant new trade restrictions on Canada, it could weaken activity, pushing inflation down. Members noted that US trade policy was unpredictable and they needed to prepare for adverse outcomes. At the same time, they also recognized that the economy had shown resilience. The global and Canadian economies had withstood several major potential crises in recent months.
The war in the Middle East had already pushed up gasoline prices, creating a new upside risk to inflation. Members agreed that the appropriate monetary policy response depended importantly on two factors: the economic conditions when the shock occurred and the persistence of the shock.
First, even as higher gasoline prices squeezed Canadians who were already facing affordability challenges, CPI inflation had been close to 2% since summer 2024. Measures of core inflation had also recently shown some downward momentum. With slack in the labour market and excess supply in the economy, businesses would be less likely to pass higher costs on to consumers. Given this starting point, and with the policy interest rate on the stimulative end of the range for the neutral rate of interest, members agreed they could look through the initial inflation shock from higher oil prices.
However, members acknowledged that there could be less excess supply than assessed, and the output gap could close faster than forecast. Furthermore, having recently experienced a large inflation surge, Canadians could be more sensitive to price changes and inflation expectations could shift more quickly. Businesses could also pass on higher costs more rapidly. Members agreed that they had scope to be patient for now, but the situation could change quickly, and monetary policy might need to respond to guard against the risk that inflation broadens and becomes more persistent.
Second, the appropriate monetary policy response depends on the persistence of the oil price shock. Governing Council’s base case was for oil prices to decline over the next year, but they recognized there was considerable uncertainty around that assumption. They discussed the various ways persistently high oil prices could impact the Canadian economy and inflation and decided to include a scenario in the April Report to illustrate these channels. If oil prices were to stay elevated for a prolonged period, CPI inflation could rise further and remain elevated for longer. Higher energy prices and supply bottlenecks could create broader cost pressures, with inflation spreading to more goods and services. In this situation, monetary policy would need to tighten to keep inflation from becoming entrenched and inflation expectations anchored. The degree of tightening would depend on other related developments including investment in the energy sector and the response of the exchange rate.
Policy decision
Governing Council considered recent geopolitical developments and the Bank’s outlook for growth and inflation in Canada, and what that implied for the current stance of monetary policy.
Economic growth was expected to be moderate, and inflation was expected to peak at around 3% before gradually returning to 2%, assuming oil prices ease. Members agreed they could look through the initial impact of the war in the Middle East on gasoline prices. They agreed that the current degree of policy support was appropriate and therefore decided to maintain the policy interest rate at 2.25%.
Members also discussed the likely near-term future path for the policy interest rate. If the economy evolves broadly as expected in the April Report, Governing Council agreed that something close to the current policy interest rate would likely be appropriate to support the economy’s adjustment and keep inflation close to the 2% target. They did not rule out the need for adjustments to the policy interest rate in this scenario, but agreed that in the base case outlook, changes to the policy interest rate could be expected to be small.
However, uncertainty was unusually elevated. Members discussed possible outcomes related to US trade policy and the war in the Middle East. The policy interest rate might need to be cut further if the United States imposed new trade restrictions on Canada. Alternatively, if oil prices remained elevated for longer, the risk of broader and more persistent inflation would increase, which could require consecutive increases in the policy interest rate to return inflation sustainably to the 2% target.
Members recognized that the actual outcome could reflect a combination of these two shocks as well as other developments. There was a range of views on the probabilities related to the outcome of the CUSMA review and the war in the Middle East, and thus the most likely path forward for the policy interest rate. Governing Council agreed that, depending on what happened, they may need to be nimble in their response to events.
Members agreed to watch developments closely and assess their implications for growth and inflation. Governing Council remained ready to respond as needed as the outlook evolved.
