As predicted by economists from Canada’s leading financial institutions, the Bank of Canada (the bank) held its overnight rate at 2.25% on Wednesday, citing the long shadow of US tariffs and high unemployment in Canada.
In a statement, the bank’s Governing Council said, “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.”
The bank expects economic and population growth will be slow this spring as US protectionism grows, however, in its projection, it said consumer spending will hold up and business investment will strengthen, supported by fiscal policy.
"The bank projects growth of 1.1% in 2026 and 1.5% in 2027, broadly in line with the October projection,” reads the bank’s statement. “A key source of uncertainty is the upcoming review of the Canada-US-Mexico Agreement.”
The bank noted inflation in December rose to 2.4%, related 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 2½% in December,” said the bank. “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.”
The bank added heightened uncertainty exists, and it is monitoring risks closely. If the outlook changes, it is prepared to respond.
“The bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”