Bank of Canada Holds Interest Rates at 2.25% in 2026 Rate Decision, Citing Trade Uncertainty and a Tight “Wait-and-See” Window

Canada’s borrowing-cost story did not change on Wednesday, January 28, 2026, but the tone did. The Bank of Canada kept its target for the overnight rate at 2.25% at its first rate decision of the year, a hold that signals policymakers are comfortable staying put while they watch two volatile forces collide: cooling inflation and rising trade risk. The announcement and accompanying outlook landed at 9:45 a.m. ET, followed by a press conference at 10:30 a.m. ET.

Alongside the overnight rate, the Bank also held the Bank Rate at 2.50% and the deposit rate at 2.20%, keeping the operating band intact.

Interest rates Canada: what “no change” means right now

A hold at 2.25% matters most for Canadians through one channel: how lenders price prime and everything tied to prime.

• Variable mortgages and lines of credit: the biggest immediate relief comes from cuts, not holds. A steady policy rate usually means payments and interest costs stay broadly where they are, unless your lender changes spreads.

• Fixed mortgage rates: these are driven more by bond markets and expectations for future moves. A hold can still move fixed rates if markets interpret the Bank’s statement as more hawkish or more dovish than expected.

• Savings and guaranteed products: stable short-term rates can keep yields elevated, which is good for savers but continues to squeeze borrowers.

Why the Bank of Canada is hesitating on rate cuts

The backdrop is a long descent from much higher rates. After a series of reductions through 2025, the Bank has now held steady for two consecutive decisions, effectively telling households and businesses: the easy part of easing is over.

The reason is uncertainty, not victory. The Bank’s messaging emphasized that the economic outlook is vulnerable to unpredictable trade policy shifts and broader geopolitical risks. That’s where CUSMA enters the conversation. The looming review of the Canada–United States–Mexico trade framework, paired with renewed tariff threats, has become a central risk variable for Canada’s growth outlook and business investment plans.

In plain terms, the Bank doesn’t want to cut into a situation where tariff-driven price shocks could reappear, but it also doesn’t want to hold so long that a soft economy turns into a deeper slowdown.

Behind the headline: incentives and stakeholders shaping this rate decision

The incentives are not symmetrical.

• The central bank’s incentive: preserve inflation credibility while keeping a fragile growth outlook from stalling out. Cutting too soon risks reigniting inflation expectations. Waiting too long risks unnecessary job-market weakness.

• Households: variable-rate borrowers want relief; first-time buyers want affordability; renters feel the second-order effects through housing supply and landlord financing costs.

• Businesses: exporters and manufacturers care less about a quarter-point move than about whether trade rules and tariffs will change their cost base overnight.

• Government finances: a steady policy rate stabilizes near-term debt-servicing forecasts, but prolonged uncertainty can weigh on growth and tax revenue.

The key tension is that monetary policy can influence demand, but it cannot undo trade damage. That’s why the Bank is leaning so heavily on “uncertainty” language: it’s preparing Canadians for a policy path that may not be smooth or predictable.

What we still don’t know

This story is now less about today’s rate and more about the next few data points and political signals that could force the Bank’s hand.

• How quickly tariff threats translate into real-world price increases, layoffs, or delayed investment

• Whether inflation holds near target as the economy absorbs trade shocks

• Whether consumer spending and housing activity reaccelerate on their own after earlier cuts

• How the CUSMA review timeline affects corporate decision-making in the first half of 2026

What happens next: realistic scenarios for Bank of Canada rate cuts in 2026

Here are the most likely paths from here, and what would trigger each:

1. Extended hold through spring

   • Trigger: inflation stays near target and growth remains modest, with trade risk unresolved.

2. A mid-year rate cut

   • Trigger: clearer signs of weakening demand, rising unemployment, or a trade shock that dents growth faster than prices rise.

3. Rates stay unchanged most of 2026

   • Trigger: the economy muddles through, inflation behaves, and policymakers prioritize stability over fine-tuning.

4. A late-2026 hike becomes plausible

   • Trigger: growth surprises on the upside, financial conditions loosen too much, or inflation pressures reemerge.

The next scheduled rate decision is Wednesday, March 18, 2026, and between now and then, Canada’s rate outlook will be driven as much by trade headlines and business confidence as by traditional inflation prints.