Bank of Canada's Tiff Macklem holds rates amid concerns of stagflation dilemma — here's what it means for your finances

While the resulting stagflation dilemma presents no easy options for the BoC, the accompanying quarterly Monetary Policy Report (MPR) should help shed some light on how the central bank intends to proceed. The MPR updates the Bank's economic forecasts for inflation, growth, and employment — and sets the tone for near-term monetary policy.

As stated in the accompanying BoC press release (2):

"The evolving conflict in the Middle East is causing heightened volatility and US trade policy continues to reshape global trade patterns. Both are ongoing sources of uncertainty. The Bank's April outlook assumes tariffs remain unchanged and the global benchmark price of oil declines to US$75 per barrel by mid 2027."

What the rate hold means for 2026

The Bank's rate hold wasn't a surprise. According to a Reuters poll of 41 economists released a week before the BoC announcement, 100% predicted that the Bank would hold the overnight rate on April 29 (1). What changed was the certainty of future rate drops. According to the Reuters poll, 80% of the 41 economists interviewed now predict no rate changes for the remainder of the year.

• Most major bank economists — including TD, CIBC, BMO, National Bank, Capital Economics and Oxford Economics — expect the overnight rate to remain at 2.25% through 2026
• Scotiabank economists predict three rate hikes in the second half of 2026, with the year-end rate reaching 3%, citing inflation risk from sustained high energy prices
• BMO remains more dovish, projecting possible cuts to 1.75% to 2.00% if the economy deteriorates significantly

Adding further uncertainty is Canada's CUSMA trade agreement review, which is due July 1, 2026. Its outcome remains the single largest wildcard for the BoC's rate path in the second half of 2026.

Broader implications for the Canadian economy

At this point, the BoC faces stagflation — economic conditions that combine high inflation and unemployment, with slow economic growth. Forecasted GDP growth for 2026 is just 1.2%, down from 1.7% in 2025 (3), signalling soft growth. Simultaneously, energy-driven inflation has re-accelerated, putting upward pressure on prices.

Governor Tiff Macklem explicitly highlighted this 'stagflation' dilemma at the March rate announcement (4): "Economic weakness combined with rising inflation is a dilemma for central banks. Raising interest rates to slow inflation could further weaken the economy. Easing interest rates to support growth risks pushing inflation well above target."

The issue of slow growth came up again with the rate announcement press release, specifically addressing slow economic growth (2):

"The outlook for economic growth in Canada is little changed from the January Monetary Policy Report (MPR) projection. After a contraction in the fourth quarter of 2025, growth is forecast to have resumed in early 2026. Consumer and government spending are supporting economic activity, while tariffs and trade uncertainty are weighing on exports and business investment. Housing activity declined in the fourth quarter and is being held back by slow population growth, economic uncertainty and ongoing affordability issues. The labour market is soft, with subdued employment growth over the past year and job losses in sectors targeted by US tariffs. The unemployment rate remains in the 6½%‑7% range, reflecting both weak hiring and fewer job seekers."

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Impact on households

The BoC's stagflation dilemma — weak growth on one hand, energy-driven inflation risk on the other — leaves policymakers with limited room to manoeuvre. Holding rates steady may prevent conditions from worsening, but it is unlikely to reverse financial stress for households already under strain.

For instance, persistent geopolitical instability, particularly the Middle East conflict, increases the risk of prolonged higher global energy prices. If the BoC views these energy-driven spikes as a threat to its 2% inflation target, it may prolong high rates or even hike them further, severely burdening Canadian households with variable-rate mortgages or high consumer debt.

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For the millions of Canadians struggling with a high household debt-to-income ratio — 177.2% as of Q4 2025 (5) — the ongoing rate hold prolongs the potential for economic shocks. Labour market deterioration could rapidly accelerate mortgage and consumer loan delinquencies — and exacerbate the economic pressure felt particularly by millions of Canadians looking to renew their mortgage this year.

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