Calgary 
The Bank of Canada has decided to hold its key interest rate steady, keeping the policy rate at 2.25% as the country navigates uneven economic conditions at home and abroad.
Credit: Bank of Canada
The central bank says the overall economic outlook has not shifted much since its October forecast. Still, it cautions that uncertainty remains elevated, particularly due to unpredictable U.S. trade policy and ongoing geopolitical tensions.
Globally, economic growth is expected to average about 3% over the coming years. The United States continues to outperform, supported by strong consumer spending and rising investment tied to artificial intelligence. Inflation south of the border has been pushed higher by tariffs, though those pressures are expected to ease later this year.
In Europe, service-sector activity and government spending are helping growth, while China’s economy is slowing as weaker domestic demand offsets strong exports.
Financial conditions worldwide remain relatively supportive. The Canadian dollar has strengthened modestly, hovering above 72 cents U.S., while oil prices have fluctuated in response to geopolitical developments and are expected to trend slightly lower than earlier forecasts.
At home, the picture is mixed. Canada’s economy appears to have lost momentum late last year after a strong third quarter. Exports continue to feel the strain from U.S. trade restrictions, though consumer spending has held up better than expected. Employment has grown in recent months, but hiring plans remain cautious and the unemployment rate is still elevated at 6.8%.
Looking ahead, the Bank expects modest growth as population growth slows and the economy adjusts to increased protectionism from the United States. Economic expansion is projected at 1.1% in 2026 and 1.5% in 2027. A key unknown remains the upcoming review of the Canada-U.S.-Mexico Agreement.
Inflation moved higher in December, reaching 2.4%, largely due to temporary tax-related effects. Underlying inflation pressures, however, have continued to ease. The Bank expects inflation to remain close to its 2% target over the forecast period.
The Bank says it will continue to monitor risks closely and stands ready to adjust policy if the economic outlook shifts. The next interest rate decision is scheduled for March 18, 2026.
