The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

The outlook for the global and Canadian economies and Mortgage Rates Canada is little changed relative to the projection in the October Monetary Policy Report (MPR). However, the outlook is vulnerable to unpredictable US trade policies and geopolitical risks.

Economic growth in the United States continues to outpace expectations and is projected to remain solid, driven by AI-related investment and consumer spending. Tariffs are pushing up US inflation, although their effect is expected to fade gradually later this year. In the euro area, growth has been supported by activity in service sectors and will get additional support from fiscal policy. China’s GDP growth is expected to slow gradually, as weakening domestic demand offsets strength in exports. Overall, the Bank expects global growth to average about 3% over the projection horizon.

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.

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% and relatively few businesses say they plan to hire more workers.  

Economic growth is projected to be modest in the near term as population growth slows and Canada adjusts to US protectionism. In the projection, consumer spending holds up and business investment strengthens gradually, with fiscal policy providing some support. The Bank projects growth of 1.1% in 2026 and 1.5% in 2027, broadly in line with the October projection. A key source of uncertainty is the upcoming review of the Canada-US-Mexico Agreement.

CPI inflation picked up in December to 2.4%, boosted by base-year effects linked to last winter’s GST/HST holiday. Excluding the effect of changes in taxes, inflation has been slowing since September. The Bank’s preferred measures of core inflation have eased from 3% in October to around 2�% in December. Inflation was 2.1% in 2025 and the Bank expects inflation to stay close to the 2% target over the projection period, with trade-related cost pressures offset by excess supply.

Monetary policy is focused on keeping inflation close to the 2% target while helping the economy through this period of structural adjustment. Governing Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today. However, uncertainty is heightened and we are monitoring risks closely. If the outlook changes, we are prepared to respond. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.

In summary, the Bank of Canada has decided to hold its key interest rate steady at 2.25%, signaling a cautious approach as both the Canadian and global economies evolve largely in line with earlier projections. While global growth remains stable at around 3%, supported by strong performance in the United States and service-sector resilience in Europe, risks remain elevated due to unpredictable U.S. trade policies and geopolitical tensions. In Canada, economic momentum has slowed after a strong third quarter, with exports impacted by tariffs and unemployment still relatively high at 6.8%, despite some recent job gains.

Looking ahead, the Bank expects modest economic growth in Canada, forecasting 1.1% growth in 2026 and 1.5% in 2027, as the country adjusts to slower population growth and ongoing trade uncertainty. Inflation has eased closer to the Bank’s 2% target, and is expected to remain stable, balancing trade-related cost pressures with excess supply in the economy. With this outlook, the Bank is maintaining its current monetary policy stance but remains prepared to act if economic conditions shift, emphasizing its commitment to maintaining price stability and supporting Canadians through a period of global uncertainty.

 Information note

The next scheduled date for announcing the overnight rate target is March 18, 2026. The Bank’s next MPR will be released on April 29, 2026.

Source: Bank of Canada Website