Bank of Canada maintains policy rate at 2.25 percent
The Bank of Canada's Governing Council maintained the policy rate at 2.25 percent following its deliberations on January 28, 2026. The decision was made amidst global economic uncertainties and ongoing structural adjustments in the Canadian economy.
Global uncertainties shape policy stance
The Bank of Canada's Governing Council maintained the policy rate at 2.25 percent, deeming it appropriate amidst a complex global and domestic economic landscape.
Globally, the US economy showed stronger-than-expected growth, fueled by consumer spending and AI investment, though US inflation was affected by tariffs.
The euro area's services sector strengthened, while China achieved its 2025 growth target.
Domestically, the Canadian economy largely met expectations, grappling with trade restrictions and uncertainty, leading to volatile GDP growth in 2025. Consumer spending proved resilient, and housing activity was projected for a gradual recovery.
The labour market remained soft, with the unemployment rate at 6.8 percent in December.
CPI inflation reached 2.4 percent, influenced by base-year effects, while core inflation measures eased to approximately 2.5 percent.
The Council agreed the economy remained in excess supply, expected to be gradually absorbed.
Navigating a volatile global trade landscape
Governing Council focused on key risks to its outlook, identifying three broad areas: geopolitical turbulence, the Canada-United States-Mexico Agreement (CUSMA) review, and economic adjustment to trade disruptions.
Recent geopolitical events, including in Venezuela, Iran, and Greenland, heightened global uncertainty, with US trade policy becoming more unpredictable.
The CUSMA review poses a significant downside risk to economic growth, as businesses remain hesitant to deploy capital without certainty on trade relations.
Structural adjustments to the new trade landscape will take time, with uncertain impacts on growth and potential output.
The Council concluded that risks around the outlook had moved higher, necessitating the maintenance of optionality in setting monetary policy.
Predicting the timing and direction of the next policy rate change remains challenging.
Optionality in an uncertain world
The Bank of Canada's decision to hold rates and emphasize optionality underscores a deep uncertainty regarding future economic trajectories.
While core inflation shows signs of easing, persistent geopolitical tensions and unpredictable trade policies complicate any clear path forward.
This cautious stance reflects a central bank prioritizing flexibility over firm forward guidance in a highly volatile global environment.