Economists widely expected the Bank of Canada to hold its policy interest rate at 2.25 per cent at its first decision of 2026 on Wednesday, Jan. 28, with financial markets pricing nearly a 90 per cent chance of a hold — and many forecasters expecting no change for the rest of the year.
Take the Bank at its word
The central bank held its policy rate steady at 2.25 per cent in December, coming off two consecutive quarter-point cuts in the second half of 2025. At that decision, Governor Tiff Macklem said the Bank believes monetary policy is at “about the right level” to balance a turbulent economy and lingering inflationary pressures.
TD Bank economist Rishi Sondhi said in a note Friday that forecasters ought to take the Bank of Canada at its word. “The Bank has repeatedly said that they are happy with the current policy stance, provided the economy evolves broadly in line with expectations,” he said. “It would take a significant undershooting of economic growth or meaningful softening in the labour market to force policymakers off the sidelines.”
A Reuters poll of economists taken Jan. 20–23 found the consensus hardening: all 35 economists surveyed expected the Bank to maintain its key rate at 2.25 per cent on Jan. 28, and nearly three-quarters — 26 of 35 — expected rates to stay unchanged through 2026, up from slightly more than 60 per cent in December.
Mixed signals argue for patience
The incoming data have given the Bank reasons to wait in both directions. Annual inflation was hotter than expected at 2.4 per cent in December, but the unemployment rate jumped to 6.8 per cent in the month, and early data suggested growth slowed in the fourth quarter. Core inflation measures, meanwhile, eased.
“It looks like the economy seems to have decelerated again in the fourth quarter, inflation is not materially diverging from the Bank of Canada’s objectives, and the unemployment rate is still too high for comfort,” said Avery Shenfeld, chief economist at CIBC — among the forecasters expecting the Bank to neither raise nor lower rates in 2026. Macklem has said officials believe inflation is likely to hold around the two per cent target for the coming year, but if the outlook changes, the Bank is “prepared to respond.”
Shenfeld added that when a central bank reaches the end of its rate path, it is typical for the policy rate to hold there for a year or more. He also suggested Macklem might soften his tone toward further easing — if only to push back against market expectations of a rate hike. “When markets hear from a central bank that they’re done easing, they start to say, ‘Well, the next move must be a hike and let’s start to put in some probability of it,'” he said. Such expectations matter: long-term rate expectations are baked into bond prices, which lenders use to set mortgage rates, and hints that cuts are done could lure some homebuyers off the sidelines this spring.
The trade cloud
The central bank will also release updated projections for the economy and inflation alongside Wednesday’s decision. Shenfeld said the outlook for key Canadian industries facing U.S. tariffs remains in question ahead of this year’s scheduled review of the Canada-U.S.-Mexico trade agreement, and that trade remains “by far” the biggest cloud on the horizon — the risk most likely to compel the Bank off its stand-pat stance if barriers worsen.
The forecasters were proven right two days later. On Jan. 28, the Bank of Canada held the rate at 2.25 per cent, said the current policy rate remains appropriate conditional on the economy evolving in line with its outlook, and cautioned that “uncertainty is heightened” — language that kept the extended pause intact.
