Recent data indicated that the Canadian economy has remained broadly steady and in line with the BoC’s projections
After much speculation, the Bank of Canada has decided to keep rates steady for its first meeting of the year, holding at 2.25 per cent.
The decision comes against a backdrop of ongoing trade uncertainty, with growing attention on the future of the Canada-U.S.-Mexico Agreement (CUSMA) and an unclear economic outlook for Canada later this year.
“US trade restrictions and uncertainty continue to disrupt growth in Canada. After a strong third quarter, GDP growth in the fourth quarter likely stalled. Exports continue to be buffeted by US tariffs, while domestic demand appears to be picking up. Employment has risen in recent months. Still, the unemployment rate remains elevated at 6.8 per cent and relatively few businesses say they plan to hire more workers,” said the BoC’s in its official statement.
In the lead-up to the announcement, recent data indicated that the Canadian economy has remained broadly steady and in line with the BoC’s projections, despite the drag from US tariffs. A recent Reuters survey showed all economists expected the bank to leave rates unchanged, and almost three-quarters anticipated no rate moves through 2026. Market pricing put the probability of a hold at 91.8 per cent, based on LSEG figures.
In December, the BoC kept its policy rate at 2.25 per cent, following two straight quarter-point cuts in the latter half of 2025.
At that time, governor Tiff Macklem said the bank views its current stance as “about the right level” to navigate a volatile economy and persistent inflation pressures.
Before the December decision to pause, markets had briefly entertained the possibility of rate hikes later in 2026. While annual inflation in December came in hotter than expected at 2.4 per cent, the unemployment rate rose to 6.8 per cent, and early indicators suggest economic growth slowed in the fourth quarter.
“Global financial conditions have remained accommodative overall. Recent weakness in the US dollar has pushed the Canadian dollar above 72 cents, roughly where it had been since the October MPR. Oil prices have been fluctuating in response to geopolitical events and, going forward, are assumed to be slightly below the levels in the October report,” said the BoC in its statement.
The Bank also released their quarterly monetary report that outlined the BoC's latest take on underlying inflation and updated forecasts for the economy and job market.
“Weak demand and trade policy uncertainty continue to weigh on investment plans for both exporting and non-exporting businesses. Growth in business investment is forecast to be soft over most of 2026. It is then projected to increase as uncertainty related to US trade policy decreases and export growth strengthens,” the report read. “After a large buildup in early 2025, inventory accumulation is expected to slow. This will drag on economic growth in 2026.”
