Investing.com -- Bank of America economists suggest the Bank of Canada will maintain its current policy rate of 2.25% throughout the year. Analysts led by Carlos Capistran argue that domestic economic weakness provides a sufficient buffer against rising energy costs.

"The bar for the BoC to hike rates this year is quite high, and our baseline is that the BoC will remain on hold for the foreseeable future," the report states. Current market pricing for nearly 50 basis points of tightening reflects geopolitical risk rather than Canadian macro fundamentals.

The Canadian labor market remains a primary concern for policymakers as job creation has turned negative since 2025. Economists noted that "demand-side weakness is the dominant force and is showing up in decelerating wage growth" across the private sector.

Inflation dynamics in Canada appeared well-anchored at approximately 2% for eighteen months prior to the recent conflict in Iran. This stability allows the central bank to look through temporary price impulses caused by the surge in global crude prices.

Under current projections, the output gap is expected to remain negative as GDP growth tracks below its long-term potential. While higher oil prices benefit Canada as a net exporter, trade uncertainty and U.S. tariffs continue to weigh on broader investment.

"Two conditions could force the BoC’s hand this year: a persistent and large shock that pushes inflation above 3% or Fed hikes," Capistran wrote. Unless inflation expectations become unmoored, the bank is likely to prioritize supporting a cooling domestic economy.