Jan 28th, 2026: The Bank of Canada has announced a hold on its overnight policy rate at 2.25%, marking another pause as policymakers navigate a complex mix of easing inflation, modest growth, and rising trade-related uncertainty.
The current policy rate sits at the bottom of the Bank’s estimated neutral range, meaning monetary policy is now considered neither stimulative nor restrictive. According to the Bank, this level remains appropriate — conditional on the economy evolving broadly in line with its latest outlook.
Why the Bank Held Rates This Time
Today’s decision reflects growing confidence that inflation is moving closer to target, while also acknowledging meaningful risks to the economic outlook.
Inflation came in at 2.1% in 2025, with core inflation easing to 2.5%. The Bank expects inflation to remain close to its 2% target over the projection period, as trade-related cost pressures are largely offset by excess supply in the economy.
At the same time, the Bank emphasized that earlier policy adjustments need time to fully work their way through the economy. With borrowing conditions already tighter and growth expected to remain modest, the Governing Council opted to hold steady rather than move prematurely.
A Slowing Economy, Not a Stalling One
According to the Bank’s latest projections, economic growth is expected to remain modest in the near term, reflecting slower population growth and Canada’s ongoing adjustment to U.S. protectionist policies.
- GDP growth is projected at 1.1% in 2026 and 1.5% in 2027, broadly unchanged from earlier forecasts
- Consumer spending is expected to hold up
- Business investment is forecast to gradually strengthen
- Fiscal policy and infrastructure spending are expected to provide support
However, the Bank made it clear that uncertainty — not weakness — is the dominant theme shaping its outlook.
Trade Policy: The Biggest Risk on the Radar
One of the most significant risks identified in the Bank’s Monetary Policy Report is the upcoming review of the Canada–U.S.–Mexico Agreement (CUSMA).
Canada currently benefits from a relatively low effective U.S. tariff rate of 5.8%, largely due to exemptions under the trade agreement. The Bank warned that an unfavourable outcome to CUSMA negotiations could significantly weaken Canada’s export competitiveness.
If trade conditions deteriorate:
- Exporters could reduce production, investment, and hiring
- Weakness would spill into service sectors
- Canadian GDP could follow a lower growth path
While efforts to diversify trade are ongoing — including increased energy exports to China — the Bank acknowledged that there is no single alternative market capable of replacing the scale and efficiency of U.S. trade in the short term.
Labour Market: Cooling, but Stabilizing
Employment weakened earlier in 2025 as tariff-affected sectors cut production and jobs. More recently, hiring has rebounded modestly, led by service-based industries such as health care.
Slowing population growth is also reducing the number of new entrants into the labour market, helping ease pressure even as overall job growth remains uneven.
This combination has contributed to a labour market that is cooling without collapsing, reinforcing the Bank’s decision to pause.
Global Backdrop: The U.S. Matters
South of the border, the U.S. economy continues to show resilience, supported by strong consumer spending and a surge in AI-related investment.
That said, recent data points to growing cracks:
- U.S. consumer confidence fell to its lowest level in 12 years
- Americans are increasingly concerned about inflation, the labour market, and economic momentum
While the U.S. Federal Reserve held rates at its most recent meeting, markets expect multiple rate cuts later this year, which could influence financial conditions in Canada over time.
What This Means for Interest Rates and Mortgages
Despite today’s hold, market-driven interest rates have been moving higher.
- The 5-year Government of Canada bond yield is again pushing toward 3%
- The 2-year bond yield remains well above the overnight rate
- The Canadian dollar has strengthened
As a result, lenders have recently increased fixed mortgage rates, even as the Bank of Canada remains on hold. If expectations shift toward higher or longer-lasting rates, fixed-rate mortgages may become more attractive to borrowers.
The Bottom Line
The Bank of Canada’s decision to hold rates at 2.25% reflects a policy stance that is cautious, data-dependent, and increasingly shaped by trade uncertainty rather than inflation alone.
While inflation is approaching target and growth remains modest, the path forward hinges on global developments — particularly the outcome of CUSMA negotiations and economic conditions in the United States.
Until greater clarity emerges, the Bank appears content to remain on hold, allowing earlier policy decisions to continue working through the economy.
Give your Mortgage Professional a Call Today
Navigating your current situation may seem challenging, given the various factors influencing your mortgage. However, finding a solution is within reach. Whether you seek clarity, guidance, or simply peace of mind during these complex times, we’re here to assist you every step of the way.
Feel free to schedule a consultation or reach out to us directly. Our team of mortgage professionals is dedicated to providing personalized support tailored to your needs.
Contact one of our mortgage professionals today by calling 604-889-7343 or send us an email at info@themortgageprofessionals.ca
Click here to visit our Instagram, where we post the latest news & tips in the mortgage world.