The Bank of Canada left its policy rate unchanged at 2.25% on Wednesday, as widely expected, delivering a neutral-to-mildly dovish hold. The statement and Governor Tiff Macklem's press conference reinforced a patient approach, as policymakers continue to balance lingering inflation risks against an economy that remains in excess supply.

The Bank expects inflation to hover around 3% in the near term before gradually easing back towards its 2% target. Officials also reiterated that they are largely looking through the Middle East conflict's impact on headline inflation, noting limited evidence that higher energy prices are feeding through more broadly into consumer prices.

While the Governing Council stressed it would not allow higher energy costs to become a source of persistent inflation, it gave little indication that a policy response is imminent. Policymakers also pointed to a likely rebound in growth during Q2, although they cautioned that economic activity remains weak and uncertainty surrounding US trade policy persists.

During his press conference, Macklem emphasised that any future policy move will depend on economic conditions rather than a predetermined timeline. He noted that core inflation has edged lower, reiterated that economic weakness continues to weigh on prices and argued that little has changed since the previous meeting, with incoming data broadly evolving as expected.

Bottom line

While policymakers continue to acknowledge inflation risks, particularly from energy prices, they appear comfortable looking through temporary shocks as long as broader price pressures remain contained.

For now, the Bank appears satisfied that rates are where they need to be, leaving future moves dependent on incoming data rather than any predetermined path.

However, the biggest clue was not what they said about inflation, but what they didn't say. There was no attempt to revive the "higher energy prices could require further tightening" narrative that appeared after the previous meeting. Instead, they repeatedly emphasised limited pass-through, excess supply and the absence of major data surprises. That's a central bank that looks comfortable staying put for quite a while.