Introduction to Interest Rates
The Bank of Canada is expected to keep its key interest rate unchanged through 2026, according to a recent Reuters poll. Economists are more in agreement than they were a month ago that the Bank of Canada will maintain its overnight interest rate. This idea has been strengthened by expectations of consistent economic growth and mostly managed inflation.
Current Economic Situation
The central bank will maintain its key rate at 2.25% on January 28, according to all 35 economists polled between January 20 and 23. Rates will stay unchanged through 2026, according to nearly 75% of respondents, a significant increase from slightly more than 60% in December. Despite conflicting signals from recent data, the growing majority shows confidence that the economy can continue growing without rekindling inflation concerns.
Mixed Economic Signals
The Canadian economy is depicted unevenly by recent metrics. After three consecutive monthly increases, job growth stagnated in December, raising the unemployment rate. At the same time, closely monitored core indicators eased, although inflation increased more than anticipated. These opposing patterns highlight the central bank’s precarious balance. Softer labour market data suggest that the economy is still sluggish, while stronger headline inflation limits the need for further rate decreases in the near future.
The Impact of Previous Rate Cuts
The central bank was among the most active of its G10 counterparts, cutting interest rates by a total of 275 basis points between June 2024 and October 2025. The economy is still feeling the consequences of those cuts, which were intended to boost growth as inflation pressures subsided. The BoC is now prepared to adopt a somewhat protracted wait-and-see approach. Avery Shenfeld, chief economist at CIBC Capital Markets, stated that if a change is possible this year, it’s more likely to be a cut than an increase.
Trade Risks and Uncertainty
Caution is also warranted due to external dangers. Economists continue to worry about the potential for new trade disputes with the United States, Canada’s biggest export market. Another degree of uncertainty is the US-Mexico-Canada Agreement, which is set for review in July. Despite US tariffs ranging from 25% to 50% on important industries, including steel, aluminium, automobiles, and timber, Canada’s economy has remained relatively strong.
Economic Growth and Policy Outlook
According to the survey, after growing by 2.6% in the third quarter, Canada’s economic growth is predicted to have drastically fallen to an annualised pace of just 0.3% last quarter. Such a slowdown strengthens the case for policy stability. Economists see no reason for the Bank of Canada to change direction in light of the slowing growth, restrained inflation, and persistent trade uncertainties. Rather, the consensus is that a prolonged pause will allow policymakers to assess whether the economy can pick up steam without further policy support.
Conclusion
In conclusion, the Bank of Canada is expected to maintain its key interest rate through 2026, due to a combination of factors including consistent economic growth, managed inflation, and external uncertainties. The central bank’s wait-and-see approach will allow policymakers to assess the economy’s ability to sustain growth without further policy support. As the economy continues to grow, albeit at a slower pace, the Bank of Canada will likely remain cautious, weighing the need for policy stability against the potential risks and uncertainties in the economic landscape.
