The Bank of Canada maintained its target for the overnight rate at 2.25%, opting for stability as it weighs the inflationary pressures of the war in Iran against a sluggish domestic labour market. While global energy costs have spiked, central bank officials are looking through the immediate impact on gasoline prices to determine if broader price stability remains intact.
The Governing Council’s decision comes at a time of significant global friction. The conflict in the Middle East has triggered heightened volatility and transportation disruptions, which the Bank of Canada says have boosted inflation worldwide. Despite these pressures, the bank’s April outlook assumes a gradual cooling of oil prices to US$75 per barrel by mid-2027.
For small and medium-sized businesses (SMBs) in Canada, the impact is two-fold. As a net oil exporter, Canada sees an increase in national income when oil prices rise, but individual consumers and business owners are feeling the squeeze at the pump. This energy-led inflation saw the Consumer Price Index (CPI) climb to 2.4% in March, with projections suggesting it could hit 3% in April.
“The Bank of Canada is walking a fine line by holding rates steady while energy prices surge,” says KJ Lee, CEO at Employment Hero Canada. “It’s a reprieve for business owners who are already dealing with higher overhead, but the warning that they’ll act if energy costs bleed into other sectors is a clear sign that the era of uncertainty isn’t over yet”.
Soft labour market and trade tensions weigh on domestic growth
While inflation is the headline concern, the Bank of Canada pointed to a soft domestic labour market as a reason for caution. Employment growth has remained subdued over the past year, with specific job losses noted in sectors targeted by US tariffs. The national unemployment rate is currently hovering in the 6.5%–7% range, a reflection of both weak hiring activity and a decrease in the number of active job seekers.
Trade uncertainty continues to act as a drag on business investment and exports. Although the bank has slightly lifted its GDP growth forecast to 1.2% for 2026, the recovery is expected to be moderate. Housing activity also remains a weak spot, hampered by slow population growth and ongoing affordability challenges that limit consumer mobility.
“We’re seeing a paradox where national income rises due to oil, but the actual ‘boots on the ground’ economy for SMBs is struggling with soft hiring and trade barriers,” says Lee. “Employers need to focus on internal productivity and staff retention because the external market is becoming increasingly unpredictable”.
Looking ahead to a nimble monetary response
The Bank of Canada stated that core inflation has been easing and currently sits just above 2%. While near-term inflation expectations have moved up due to gas and food prices, the bank remains confident that long-term expectations are anchored. However, the Governing Council warned it is closely monitoring the Middle East conflict and US trade policy, standing ready to respond if higher energy prices become persistent.
The central bank’s next scheduled rate announcement is June 10, 2026. For now, the focus remains on whether the current excess supply in the economy can be absorbed as growth in exports and business investment resumes along what the bank describes as a “lower trajectory”.
For Canadian SMB employers, this period of rate stability offers a chance to shore up operations before the next potential shift in policy. With the bank committed to maintaining price stability through this global upheaval, businesses must remain agile in their financial and recruitment strategies to weather the volatile months ahead.
