The Bank of Canada kept its policy rate at 2.25% on Wednesday, in line with expectations. The statement pointed to weaker growth prospects and the risk of higher inflation in the near term.
Policymakers said recent data showed economic activity was falling short of forecasts. They said the balance of risks had shifted towards slower growth.
They warned that higher petrol prices and the conflict in the Middle East were likely to push inflation up in the short term. The bank also noted that financial conditions are already tighter.
Governor Tiff Macklem said the bank will take decisions meeting by meeting. He said rates could rise if energy-led inflation persists and feeds into core measures, or fall if energy prices ease and economic weakness deepens.
Senior Deputy Governor Carolyn Rogers said the bank is relying more on high-frequency indicators. She also referred to improved methods for judging supply shocks.
The bank gave no clear signal of near-term cuts. It kept the option of further tightening if inflation pressures broaden.
When we look back at the situation in 2025, the Bank of Canada was clearly stuck between slowing growth and rising inflation risks. They held rates steady at 2.25% but kept the door open to move in either direction, creating significant uncertainty. This left the Canadian Dollar in a finely balanced position, with downside risk from a weak economy but supported by the potential for a future rate hike.
The situation today, on March 18, 2026, feels very similar, which gives us a playbook for the coming weeks. We just saw the latest CPI data show inflation ticking up to 3.1%, stubbornly above the bank’s target, while last quarter’s GDP growth was nearly flat at 0.1%. This data reinforces the same stagflationary pressures we saw last year, suggesting the Bank will remain in its wait-and-see mode.
Given this two-sided risk from the Bank, traders should consider buying volatility. A long straddle on June CORRA futures could be effective, as it would profit from a large rate move whether the Bank is forced to hike due to persistent inflation or cut due to a faltering economy. The key is that the Bank’s indecision likely means that when they finally do act, the market move will be sharp.
For those who believe the Bank will remain paralyzed for another quarter, selling options to collect premium is a viable strategy. An iron condor on the USDCAD exchange rate, centered around the current spot price, would profit if the currency pair remains range-bound as markets await a clear signal. This strategy benefits directly from the kind of policy stalemate we are currently witnessing.
However, given the extremely weak growth figures, we should also be prepared for a dovish surprise from the central bank. Traders holding long CAD positions should consider buying out-of-the-money put options as a low-cost hedge. This protects against a scenario where the Bank prioritizes the weak economy and signals future rate cuts, which would send the Canadian Dollar lower.
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