TD Securities expects the Bank of Canada to keep the policy rate at 2.25% in March. It projects a cautious statement that reflects softer Canadian growth and moderating core inflation since the January outlook. The outlook also includes upside inflation risks tied to higher oil prices linked to the Iranian conflict. These energy-price moves could affect headline inflation and domestic growth.

Policy Rate Outlook And Key Drivers

The bank’s guidance is expected to keep options open for future rate moves. It expects the Bank to repeat that the current rate remains appropriate during a period of structural adjustment. It also expects the Bank to restate that it is difficult to predict the timing or direction of the next change in the policy rate. The note says rate cuts are harder to justify if global energy prices stay under pressure, but not ruled out. It cites a $38 intraday fall in WTI crude on 9 March as an example of how quickly conditions can change. The article says it was produced with help from an AI tool and reviewed by an editor. We see the Bank of Canada holding its policy rate steady at 2.25% for the time being. The Bank is caught between two opposing forces right now. On one side, domestic growth is slowing down, but on the other, the conflict in Iran is pushing oil prices and inflation risks higher.

Market Volatility And Trading Implications

Looking back at the end of 2025, we saw GDP growth was a sluggish 0.5%, and recent data for early 2026 showed a similar weak trend. Core inflation measures have also cooled, with the latest report showing CPI-trim at 2.8%, moving closer to the Bank’s target. However, with WTI crude currently trading over $95 a barrel, these domestic signals are being overshadowed by global price pressures. Because of this, we expect the Bank’s guidance to stay very cautious and non-committal. They will likely repeat that the current rate is appropriate for now and that the next move is unpredictable. This high level of uncertainty makes taking a strong directional bet on interest rates very risky in the coming weeks. The situation in Iran introduces a one-sided risk to the Bank’s forecast. If oil prices remain high, it will almost certainly push headline inflation up further. This upside pressure on inflation helps to offset some of the economic weakness we’ve been seeing from ongoing trade issues. Given this backdrop, traders should be prepared for significant volatility. The wild $38 intraday price swing in WTI crude on March 9th shows just how quickly market sentiment can shift. This suggests that options strategies designed to profit from large price movements, rather than a specific direction, may be favorable. Rate cuts are a much harder sell in this high-energy-price world, but we don’t think they are off the table entirely. Any sign of de-escalation in the Middle East could cause the market to rapidly price in rate cuts once again. We saw a similar dynamic back in 2022 when markets quickly repriced central bank paths during the initial phases of the conflict in Ukraine. Create your live VT Markets account and start trading now.

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