The Bank of Canada announced it will keep its target for the overnight rate at 2.25 percent, with the Bank Rate at 2.5 percent and the deposit rate at 2.20 percent.
According to the central bank, the global and Canadian economic outlooks remain largely unchanged from projections made in October. The Bank noted that “the outlook is vulnerable to unpredictable US trade policies and geopolitical risks.”
Growth in the United States continues to exceed expectations, supported by investments related to artificial intelligence and consumer spending. The Bank observed that tariffs are increasing U.S. inflation but expects these effects to lessen later this year. In Europe, growth has been aided by service sectors and fiscal policy support, while China’s economy is projected to slow as domestic demand weakens despite strong exports. Global growth is expected to average about 3 percent over the projection period.
The Canadian dollar has strengthened above 72 cents following recent weakness in the U.S. dollar, remaining near levels seen since October. Oil prices have fluctuated due to geopolitical events and are assumed to be slightly below previous forecasts.
“US trade restrictions and uncertainty continue to disrupt growth in Canada,” according to the Bank’s statement. After a strong third quarter, GDP growth likely stalled in the fourth quarter as exports faced challenges from U.S. tariffs, though domestic demand showed signs of improvement. Employment has increased recently but unemployment remains elevated at 6.8 percent, with few businesses planning new hires.
The Bank projects modest economic growth for Canada in the near term as population growth slows and adjustments are made in response to U.S. protectionism. Consumer spending is expected to hold steady while business investment gradually strengthens, aided by fiscal policy measures. Growth rates are forecasted at 1.1 percent for 2026 and 1.5 percent for 2027, similar to previous projections.
Inflation rose in December to 2.4 percent due mainly to base-year effects from last winter’s GST/HST holiday; however, underlying inflation excluding tax changes has slowed since September. Core inflation measures dropped from three percent in October to around two-and-a-half percent in December, with overall inflation anticipated near the two-percent target during the projection period as trade-related costs are offset by excess supply.
“Monetary policy is focused on keeping inflation close to the 2% target while helping the economy through this period of structural adjustment,” said Governing Council members in their statement. “Governing Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today.” They added: “However, uncertainty is heightened and we are monitoring risks closely. If the outlook changes, we are prepared to respond.” The statement concluded: “The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”
The next scheduled announcement on interest rates will be March 18, 2026; an updated Monetary Policy Report will follow on April 29.
The Bank of Canada maintains low and stable inflation levels while overseeing monetary policy and payment systems within Canada’s financial sector (https://www.bankofcanada.ca/news/). It also promotes economic resilience through productivity initiatives (https://bankofcanada.ca), manages currency—including digital payments—and engages university students via educational programs such as monetary policy simulations (https://www.bankofcanada.ca/news/). Tiff Macklem has served as Governor since June 3, 2020 (https://www.bankofcanada.ca/news/).
