Bank of Canada Prepares for First 2026 Rate Decision

The Bank of Canada is scheduled to announce its first interest rate decision of 2026 on January 28. This meeting follows mixed reports regarding the Canadian economy, touching on consumer inflation, economic growth, and labor market conditions.

Economic Conditions and Predictions

Shannon Terrell, a financial expert at NerdWallet Canada, suggests that a rate hold is likely, but the growing case for a rate cut cannot be ignored. She noted that rising unemployment could stall economic growth if the job market continues to weaken.

The last decision by the Bank of Canada was on December 10, 2025, when the key policy rate was maintained at 2.25%. This rate directly influences the interest rates offered by commercial lenders on products such as mortgages.

Impact on Mortgages and Borrowers

• A change in the Bank of Canada’s key rate can affect mortgage rates offered to Canadians.
• Those with variable-rate mortgages may see their payments adjust based on the central bank’s decision.

The Bank of Canada sets its overnight lending rate based on various economic indicators and expert analysis. The institution aims to maintain an inflation rate of around 2% while encouraging robust economic growth.

In scenarios where inflation rises excessively, the Bank may increase rates to curb borrowing, helping to stabilize prices. Conversely, in times of economic slowdown, rate cuts can stimulate borrowing and promote growth.

Current Economic Indicators

The latest GDP report indicates that Canada’s economy contracted by 0.3% in October. Persistent sluggish growth could prompt the Bank of Canada to lower rates further, making borrowing more accessible for consumers and businesses alike.

Economists have been cautious following recent reports on consumer inflation and the job market. Nathan Janzen, assistant chief economist at Royal Bank of Canada, commented that the Bank is likely to maintain current rates, encouraged by signs of stabilizing inflation and a decline in unemployment.

Inflation Rates and Unemployment

• December 2025 consumer inflation was reported at 2.4%, up from 2.2% in November.
• The unemployment rate increased to 6.8% in December, compared to 6.5% in November.

These figures reflect ongoing challenges, particularly as the high cost of living continues to pressure Canadians. At the December meeting, Governor Tiff Macklem acknowledged that while inflation aligns with targets, prices for goods and services remain elevated.

Outlook for Interest Rates

In 2025, Canada experienced four interest rate cuts, with the last occurring in October. Following a pause in rates during December, the upcoming decision on January 28 might mark the second consecutive hold.

Derek Holt, head of capital markets economics at the Bank of Nova Scotia, expressed that the Bank will likely refrain from immediate actions but may provide insights regarding future policy directions.

As Canadians await the upcoming decision, the focus will be on how the Bank of Canada balances inflation control with economic growth while navigating the complexities of the labor market.