Bank of Canada Holds at 2.25% as Iran War Squeezes Oil Markets and Tests Business Budgets
Date Published
The Bank of Canada held its rate at 2.25% on March 18 as the Iran conflict drives oil above US$100/barrel and disrupts global commodity supply chains. With unemployment rising and inflation near target, the Bank faces a policy dilemma — and the next decision lands April 29.
Key Insights
The Bank of Canada held its overnight rate at 2.25% on March 18, 2026 — the third consecutive hold since October 2025.
Oil prices surged to US$126/barrel at peak after the Strait of Hormuz closure disrupted roughly 20% of global seaborne oil supply.
February 2026 saw 84,000 jobs lost — one of the worst monthly declines outside the pandemic — pushing unemployment to 6.7%.
Inflation remains near target at 1.8%, but energy-driven price pressure creates a genuine dilemma: cutting risks inflation, holding or hiking risks a weaker economy.
Commodity disruptions extend beyond oil to fertilizer, aluminum, and LNG — raising input costs for agriculture, manufacturing, and logistics-dependent businesses.
The next Bank of Canada rate decision is April 29, 2026, and the outcome hinges largely on how the Strait of Hormuz situation develops in the weeks ahead.
The Bank of Canada held its overnight lending rate at 2.25% on March 18 — the third consecutive hold since October 2025 — but the decision came with an unusually candid warning from Governor Tiff Macklem: 'Economic weakness combined with rising inflation is a dilemma for central banks.' That dilemma has a name right now. It's the war in the Middle East, and its effects are rippling directly into Canadian business costs.
Since the outbreak of the Iran conflict, global oil prices have surged to levels not seen in years. Brent crude surpassed US$100 per barrel on March 8, 2026 — the first time in four years — and peaked at US$126 per barrel in the weeks that followed. The trigger: the effective closure of the Strait of Hormuz, the narrow chokepoint through which roughly 20 million barrels of oil pass every day, representing approximately 20% of global seaborne oil trade. The International Energy Agency has described the disruption as the largest supply shock in the history of the global oil market.
A Rate Decision Caught Between Two Bad Outcomes
The Bank finds itself in a bind it cannot easily escape. On one side, the domestic economy is softening faster than forecast. The unemployment rate climbed to 6.7% in February 2026, after employment gains made throughout Q4 2025 were largely wiped out in the first two months of the year. February alone saw 84,000 jobs disappear, with full-time employment down 108,000 and private sector payrolls falling 73,000 — figures that economists described as among the worst monthly declines outside the pandemic period. On the other side, headline inflation — sitting at 1.8% in February — is still close to the Bank's 2% target, but the direction of travel is uncertain with energy costs climbing fast. Cutting rates to stimulate a fragile economy risks pushing inflation above target. Raising rates to guard against energy-driven price increases risks making a weak labour market worse. Holding, for now, is the least bad option.
Beyond Oil: Fertilizer, Aluminum, and Supply Chain Pressure
The Hormuz closure isn't just an oil story. The disruption to shipping lanes is affecting the movement of other commodities critical to Canadian industries — including fertilizer, aluminum, and liquefied natural gas. For Canadian agricultural suppliers and farmers heading into planting season, the timing is particularly sharp: fertilizer prices have spiked alongside LNG markets. Humanitarian aid organizations have flagged that shipping disruptions are preventing supplies from reaching sub-Saharan Africa, signalling how broadly the bottlenecks have spread. For any business that relies on imported inputs or moves goods through global logistics networks, the cost pressures are real and not short-term in nature.
What to Watch Before April 29
The Bank's next rate decision is scheduled for April 29, 2026. Between now and then, the trajectory of the Hormuz situation will be the defining variable. If the disruption deepens or extends, energy-driven inflation could force the Bank's hand toward a hold or even a rate increase — even as job losses mount. If the conflict de-escalates and shipping lanes reopen, the Bank has more room to consider a cut to support an economy where growth is already running below forecast. Business owners should treat April 29 as a live decision, not a foregone conclusion.
What This Means for Your Business
The rate hold means your variable-rate business loans and lines of credit stay where they are — for now. That's a moment of stability worth using. If you've been considering refinancing, locking in fixed-rate financing, or drawing on credit for capital investment, the window before April 29 is a known quantity. Use it. At the same time, the rate hold does nothing to protect you from the cost side of the equation. Fuel, freight, and energy-linked inputs are rising regardless of what the Bank does with interest rates. If your business runs on logistics, agriculture, manufacturing, or any supply chain with international components, it's time to revisit your input cost assumptions for Q2 and Q3 2026 and stress-test your margins against an oil price that may not retreat quickly.
If you're watching the labour market: the February jobs data is a reminder that the economy is softer than it looks on the surface. That has two edges for small employers — it may make hiring easier in some sectors, but it also signals weaker consumer spending ahead. Build your revenue forecasts conservatively, keep a close eye on your receivables, and make sure your financing relationships are in good standing before the April 29 decision changes the calculus again.
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Frequently Asked Questions
Does the rate hold mean my business loan costs will stay the same?
For now, yes — variable-rate business loans and lines of credit tied to the prime rate remain stable while the overnight rate holds at 2.25%. However, the April 29 decision is live, and conditions could shift. If the energy shock pushes inflation meaningfully above the Bank's 2% target, a rate increase is possible even with a weakening economy.
Why are fertilizer and aluminum prices being affected by a Middle East oil conflict?
The Strait of Hormuz closure has disrupted shipping lanes used for far more than oil. Fertilizer, liquefied natural gas, aluminum, and other commodities move through the same global logistics networks. When those routes are blocked or made significantly more expensive to navigate, prices for those goods rise regardless of domestic conditions.
What does a 6.7% unemployment rate mean for small business owners?
It signals that the broader economy is softer than it was six months ago, which typically points to more cautious consumer spending ahead. For employers, a looser labour market can make hiring easier in some sectors — but the February data (84,000 jobs lost, 108,000 full-time positions gone) suggests this is a meaningful slowdown, not just noise. Build revenue forecasts carefully and watch your receivables.
When is the next Bank of Canada rate decision and what should I watch for?
The next rate decision is April 29, 2026. The key variable to monitor is the Strait of Hormuz situation — whether shipping disruptions ease or worsen will strongly influence whether the Bank holds again, cuts to support the economy, or raises rates to contain energy-driven inflation. Watch oil prices and any diplomatic or military developments in the region.
Should I lock in fixed-rate financing before April 29?
That depends on your risk tolerance and cash flow needs, but the current environment makes the case for reviewing your options. Fixed-rate financing offers predictability at a moment when the rate outlook is genuinely uncertain — the Bank could hold, cut, or raise in April depending on how the energy situation evolves. Speak with your lender or financial advisor before the decision window closes.