Bank of Canada Maintains Key Interest Rate at 2.25% Again

The Bank of Canada kept its benchmark interest rate unchanged at 2.25 per cent at its first policy decision of the year, a move that was widely expected by economists and financial markets.

The central bank said the current rate remains appropriate given today’s economic conditions, but made it clear that uncertainty around the outlook remains unusually high. Much of that uncertainty stems from ongoing trade tensions, U.S. tariff impacts, and the upcoming review of the Canada United States Mexico Agreement.

In prepared remarks, Bank of Canada Governor Tiff Macklem said the Canadian economy has generally evolved in line with the central bank’s expectations since it paused its rate cutting cycle in December. However, he cautioned that it is still too early to determine how well the economy will adjust to current tariffs and ongoing geopolitical risks.

While the Bank believes the policy rate is appropriate based on its outlook, Macklem noted that the timing or direction of the next interest rate change is difficult to predict. Both a rate cut or a rate hike remain possible depending on how economic conditions evolve.

Updated Economic Outlook

Alongside the rate decision, the Bank of Canada released updated economic and inflation forecasts in its latest Monetary Policy Report.

After strong annual GDP growth in the third quarter of 2025, the central bank now estimates that economic growth stalled in the final quarter of the year. Policymakers pointed to volatility driven by shifts in export volumes and business activity responding to tariff changes.

The Bank estimates that Canada’s economy grew by an average of 1.7 per cent in 2025. Looking ahead, it forecasts more modest growth of 1.1 per cent in 2026 and 1.5 per cent in 2027 as businesses adapt to new trade realities. By comparison, global economic growth is expected to remain stronger, averaging just over three per cent in the coming years.

A projected decline in net exports is a key contributor to Canada’s relatively weaker outlook. The Bank also cited slowing population growth as an additional drag on economic activity.

Inflation Outlook Remains Near Target

Inflation data remains somewhat difficult to interpret due to temporary factors such as last year’s federal tax holiday and the winding down of the consumer carbon price. Despite these complications, the Bank expects inflation to remain close to its two per cent target over the forecast horizon.

Higher costs related to trade disruptions are expected to be largely offset by slower economic growth, helping to keep inflation contained.

What Comes Next

Economists surveyed ahead of the announcement overwhelmingly expected the Bank to hold rates steady. Nearly three quarters anticipate that the policy rate could remain unchanged through much of 2026 if economic uncertainty persists.

The Bank of Canada’s next interest rate decision is scheduled for March 18. Markets and borrowers alike will be watching closely for signs of whether future rate moves will tilt toward easing or tightening as new economic data emerges.

Source: CTV News

January 28, 2026