The Bank of Canada held its overnight rate at 2.25% last week, which was followed by news Canada’s economy hit some speed bumps in the final months of 2025, with an annualized decline of 0.5%.
The decline has economists predicting the bank’s rate will hold at 2.25% through the course of 2026.
“Canada's economy hit the brakes in Q4 and may have slipped into reverse,” Tony Stillo, director of Canada economics at Oxford Economics, told Canadian Mortgage Professional, adding “we don’t think it will change the Governing Council's view that interest rates are at an appropriate level.”
RBC Economics’ Nathan Janzen and Abbey Xu said monthly GDP estimates “are highly revision prone” and they “do not expect further interest rate reductions from the Bank of Canada” and “a near‑term pivot to interest rate increases won't be needed. This subdued growth backdrop supports keeping the policy rate on hold through 2026.”
In a note, Oxford Economics wrote “the bank will likely remain on hold for all of 2026, before adjusting rates back to a neutral level of 2.75% in early 2027, assuming the economy improves after successful renegotiation of the USMCA.”
Oxford added if the trade pact “falls apart entirely” the bank would push rates “deeper into stimulative territory for an extended period.”
Scotiabank was an outlier, predicting Canada’s growth “stays roughly flat in 2026” and that the bank is “unlikely to move until USMCA renegotiations are settled and the policy backdrop clears,” with a bank rate hike in the second half of 2026.
Penelope Graham of Ratehub.ca said if the bank holds at 2.25% for the year, it “ushers borrowers into what will likely be a prolonged period of stability.”
“The bank anticipates that economic growth will continue to be soft in 2026, as businesses are hesitant to hire, and Canadian trade rebalances US volatility with growing domestic demand,” added Graham. “It also pointed to recent easing in core inflation measures and expects inflation to remain close to its 2% target over the year, further supporting rationale for an extended rate hold.”
The rate hold means no changes for those with variable-rate mortgages.
“The interest rate, payment size, or the amount of the mortgage payment that services interest, will all remain the same,” says Graham. “For those shopping for a variable mortgage rate, the pricing available today, a low of 3.35%, is the best since the summer of 2022,” says Graham. “Given the bank is expected to hold rates for the foreseeable future, scoring a low variable rate can be a great way to save money, as long as your budget can absorb any surprise increases, which are never off the table.”
“However, time is of the essence for rate shoppers, as lenders may be prompted to increase their spread to the prime rate, now that we’re in a sustained lower-rate environment.”
Fixed-rate mortgages are unlikely to go lower, due to geopolitical tensions and erratic US trade policy, which have kept global bond yields firmly elevated, says Graham.
“This has had a knock-on effect on Canada’s benchmark five-year yield, which lenders use as the price floor for their five-year fixed terms,” she says. “However, the best insured five-year fixed mortgage rate in Canada is 3.84%, comparably lower than fixed-rate offerings in recent years. For those seeking stability amid today's economic upheaval, current interest rate pricing offers the chance to do so at a competitive price.”
The rate hold isn’t going to take home buying out of its doldrums, which are affecting most Canadian markets.
“The reality is that Canada’s buying slump is mainly attributed to a lack of confidence and fear amid highly volatile economic conditions,” says Graham. “Concern over job loss remains a top factor, especially in markets that are exposed to Trump’s steel and manufacturing tariffs. This has contributed to multi-decade lows for sales in Canada’s largest markets, which likely won’t see any substantial improvement as long as such threats remain.”
