The Bank of Canada (BoC) opted to keep its policy rate at 2.25%, as anticipated, though the accompanying statement reflected a more complex view, influenced by a dimmer growth forecast and the potential for inflation to climb in the near future.

Indeed, policymakers recognised that recent data suggested economic activity was not meeting expectations, with the balance of risks now leaning toward slower growth. They also cautioned that rising gasoline prices and the continuing conflict in the Middle East would probably contribute to higher inflation in the short term.

At the same time, financial conditions are already tighter, reinforcing the view that policy is sufficiently restrictive for now.

In his usual press conference, Governor Tiff Macklem added a clear layer of optionality, stressing that the bank has time to assess developments and will proceed meeting by meeting, but also outlining a two-sided reaction function: rates could be raised if energy-driven inflation proves persistent and starts feeding into core measures, or lowered if energy prices ease and economic weakness deepens.

In addition, Senior Deputy Governor Carolyn Rogers echoed the data-dependent approach, highlighting a stronger focus on high-frequency indicators and the BoC’s improving ability to assess supply shocks.

For the FX world, the signal remains finely balanced; softer growth argues against the Canadian Dollar (CAD), but the absence of any easing bias and the explicit willingness to hike if inflation broadens should help limit the downside.

Bottom line: a steady hold with a conditional tightening bias, leaving the BoC firmly in wait-and-see mode as it navigates a stagflationary mix of weaker growth and rising inflation risks.