Bank of Canada May Hold Key Rate Steady This Week and Year

Economists widely anticipate that the Bank of Canada will maintain its key interest rate this week. The central bank is set to announce its initial interest rate decision of 2026 on Wednesday. As of Monday morning, financial markets indicated a nearly 90 percent likelihood that the Bank will keep rates unchanged.

Current Interest Rate Situation

The Bank of Canada has held its benchmark interest rate steady at 2.25 percent since December 2025. This followed two consecutive quarter-point reductions in the latter half of the previous year. Governor Tiff Macklem stated that the current monetary policy is appropriately positioned to navigate a volatile economy while managing persistent inflationary pressures.

Economic Outlook and Forecasts

• Inflation Rate: As of December, the annual inflation rate was 2.4 percent.
• Unemployment Rate: The unemployment rate rose to 6.8 percent in the same month.
• Growth Trends: Early data suggests a slowdown in economic growth during the fourth quarter of 2025.

Rishi Sondhi, an economist at TD Bank, emphasizes that the Bank of Canada’s officials show satisfaction with the current stance. They believe that any significant deviation in economic growth or a decline in the labor market could prompt policymakers to alter their approach.

Projected Stability in Interest Rates

CIBC’s chief economist, Avery Shenfeld, indicates that recent economic data has not been compelling enough to prompt a shift in the Bank’s policy. He expects the Bank to hold its interest rate steady throughout 2026. This stability often follows a period of adjustments, allowing the economy to adapt to current borrowing rates.

Market Reactions and Business Implications

Shenfeld noted that market expectations surrounding interest rates can significantly impact economic activity. The potential for a rate hike in the future can influence mortgage and loan rates, contributing to consumer behavior in the housing market.

While current mortgage rates are not particularly low, the Bank’s indications that rate cuts may not be forthcoming could encourage homebuyers to enter the market. Businesses, too, rely on cues from the Bank of Canada for their investment and planning strategies, despite the central bank’s rates being less of a concern for companies in the past year.

Risks to the Economic Outlook

The upcoming review of the Canada-U.S.-Mexico trade agreement presents a potential risk to the financial landscape. Trade tensions and tariff uncertainties remain significant factors that could influence the Bank’s rate decisions this year.

Shenfeld warns that unexpected economic shocks, such as a stock market downturn, could prompt the Bank of Canada to reconsider its current stance. He concludes that trade dynamics will likely pose the most considerable threat to the Bank’s outlook in 2026.

This report by Filmogaz.com was first published on January 26, 2026.