Bank of Canada Maintains Overnight Rate, Meeting Expectations

The Bank of Canada has announced that it will maintain its overnight rate at 2.25%, aligning with market expectations. This decision reflects a stable outlook for both the global and Canadian economies, although uncertainty persists amid fluctuating trade dynamics.

Current Economic Outlook

In its latest assessment, the Bank of Canada expressed that the economic outlook remains relatively unchanged since the October Monetary Policy Report. Despite this stability, potential risks from unpredictable U.S. trade policies and geopolitical tensions could impact future conditions.

Key Economic Indicators

• Overnight Rate: 2.25%
• Bank Rate: 2.5%
• Deposit Rate: 2.20%

As of December, the Canadian economy shows signs of modest growth. However, projections indicate stalling in GDP growth for the fourth quarter of this year. Furthermore, while domestic demand increases, export activities remain challenged by existing U.S. tariffs.

Projections for GDP Growth

Forecasts reflect anticipation of gradual economic growth. The Bank expects GDP to increase by:

• 2025: 1.7% (up from a prior 1.2%)
• 2026: 1.1% (down from a previous 1.6%)
• 2027: 1.5% (down from a prior 1.6%)

Global Economic Context

The global growth outlook is similarly cautious, with average growth expected at 3%. The U.S. economy continues to exceed expectations, driven mainly by investments in artificial intelligence and robust consumer spending. In contrast, growth in China is projected to slow down, reflecting weakening domestic demand.

Inflation and Monetary Policy

CPI inflation in Canada increased to 2.4% in December, influenced by previous fiscal measures. Meanwhile, the Bank of Canada anticipates inflation will remain near the 2% target throughout the projection period, subsequently indicating a conducive monetary policy stance for long-term stability.

• 2026 CPI forecast: 2.0% (a slight decrease from 2.1%)

The Bank remains vigilant, ready to adjust monetary policy if economic conditions shift. It emphasizes a commitment to sustaining Canadians’ confidence in price stability while navigating through these uncertain times.

Conclusion

As the Bank of Canada holds its overnight rate steady at 2.25%, it underscores a cautious approach amid evolving economic circumstances. Continued monitoring of both domestic and international landscapes will be crucial in the coming months.