Bank of Canada Holds Overnight Rate at 2.25% as Inflation Trends Toward Target and Trade Risks Loom

January 28, 2026 — Ottawa, ON

The Bank of Canada has announced that it is holding its target for the overnight rate at 2.25%, maintaining the Bank Rate at 2.5% and the deposit rate at 2.20%. Today’s decision reflects a backdrop of stable inflation, cautious economic growth, and persistent uncertainty stemming from global trade tensions—particularly those originating in the United States.

With the broader global outlook largely unchanged from its October Monetary Policy Report (MPR), the Bank emphasized that while economic projections are steady, risks remain elevated due to geopolitical instability and unpredictable U.S. trade policy.

Global Outlook: Growth Steady, Risks Heightened

Global economic growth is expected to average around 3% over the projection horizon, consistent with earlier forecasts. However, the drivers of growth—and the risks surrounding it—continue to evolve.

• United States: Economic growth remains stronger than previously expected, powered by robust consumer spending and a continued surge in AI-related capital investment. U.S. tariffs are still lifting inflation south of the border, though this impact is expected to diminish later in the year.
• Euro Area: Growth remains supported by services and is expected to receive an added boost from fiscal policy.
• China: GDP growth is projected to slow as domestic demand softens, even as export activity strengthens.

Despite turbulence in oil markets and geopolitical tensions, global financial conditions remain broadly accommodative. A weaker U.S. dollar has pushed the Canadian dollar above $0.72 USD, maintaining levels close to where they stood in the October MPR.

Canadian Economy: Slowing Growth but Signs of Momentum

Domestically, Canada continues to feel the strain of U.S. protectionism. After stronger-than-anticipated growth in the third quarter, the economy stalled in Q4, largely due to weakening exports affected by ongoing U.S. tariffs.

At the same time, signs of internal resilience are emerging:

• Employment has increased in recent months, although the unemployment rate remains elevated at 6.8%.
• Domestic demand shows early signs of strengthening.
• Business hiring intentions remain modest, aligning with a broader climate of caution.

Over the next two years, the Bank expects modest but steady growth, projecting GDP expansion of 1.1% in 2026 and 1.5% in 2027. Fiscal policy is expected to offer support; however, a major source of uncertainty remains the impending review of the Canada‑US‑Mexico Agreement (CUSMA).

Inflation: Trending Toward the 2% Target

Inflation dynamics continue to move in the right direction. December CPI rose to 2.4%, though the Bank attributes part of this increase to base effects related to last winter’s GST/HST holiday. When adjusted for tax changes, inflation has been steadily cooling since September.

The Bank’s preferred measures of core inflation have eased from 3% in October to roughly 2.5% in December. Inflation averaged 2.1% for 2025 and is expected to remain close to the 2% target throughout the projection period. Excess supply in the economy is expected to offset ongoing trade‑related cost pressures.

Housing and Mortgage Market Implications

For homeowners, buyers, and mortgage professionals, today’s rate hold delivers a message of stability.

1. Variable-Rate Mortgages

With the policy rate unchanged at 2.25%, variable-rate borrowers will see no immediate changes to monthly payments. This provides continued breathing room after a period of elevated economic uncertainty.

2. Fixed Mortgage Rates

Fixed mortgage rates are influenced more by bond yields than by the policy rate; however, with inflation near target and no short‑term pressure for tighter monetary policy, bond markets may see reduced volatility. This environment supports more predictable—and potentially competitive—fixed‑rate offerings from lenders.

3. Housing Market Confidence

As inflation cools and rate stability persists, buyer confidence may gradually improve. That said, broader economic adjustments—such as slower population growth and ongoing trade disruptions—could limit rapid acceleration in housing demand.

Looking Ahead

The Bank of Canada reiterated its commitment to keeping inflation anchored near 2% while supporting the economy through a period of significant structural adjustment. The Governing Council noted that the current policy stance remains appropriate as long as the economy evolves in line with its published outlook.

However, officials emphasized that uncertainty has increased. Should economic conditions shift—particularly in response to global trade outcomes or domestic labour market changes—the Bank stands ready to respond.

For now, today’s announcement reinforces a message Canadians have been waiting for: stability is returning, even as the global landscape remains turbulent.