The Bank of Canada announced it will keep its policy interest rate at 2.25%, as stated by Governor Tiff Macklem during a press conference held with Senior Deputy Governor Carolyn Rogers. The decision follows the central bank’s ongoing assessment of economic growth and inflation, which remain largely unchanged from previous projections.
“Our forecast for economic growth and inflation in Canada has not changed significantly since our October projection. As the Canadian economy continues to adjust to US trade restrictions, we expect GDP to grow modestly and inflation to stay close to the 2% target,” Macklem said.
He noted that uncertainty surrounding the forecast is higher than usual due to unpredictable US trade policy and elevated geopolitical risks. “Our monetary policy decisions are focused on keeping inflation close to the 2% target while helping the economy through this period of structural change. Governing Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today. With heightened uncertainty, we are monitoring risks closely. If the outlook changes, we are prepared to respond.”
Macklem explained that tariffs and uncertainty continue to affect Canada’s economy. Economic growth likely stalled in the fourth quarter after a strong third quarter, mainly due to ongoing US tariffs impacting exports. However, domestic demand appears to be increasing.
“Household spending is expected to continue growing moderately, supported by past cuts in interest rates and rising disposable incomes,” he said.
Business investment has been restrained by US tariffs and related uncertainties but may see modest improvement as businesses adapt and governments boost infrastructure spending.
The labor market also reflects these challenges. Employment weakened in early 2025 in sectors affected by tariffs but has since improved, especially in services like health care. Slower population growth is reducing new entrants into the workforce; however, unemployment remains high at 6.8%, with youth unemployment particularly elevated.
Looking ahead, Macklem said: “Overall, economic growth is expected to pick up gradually. The Bank of Canada projects annual average GDP growth of 1.1% in 2026 and 1.5% in 2027, broadly in line with our October projection.”
Inflation averaged 2.1% last year and has stayed within a range of 1%–3% for two years. In December, CPI inflation rose to 2.4%, partly due to base-year effects from last winter’s GST/HST holiday. Core inflation measures have eased from 3% in October to about 2½% in December.
“The Bank expects CPI inflation to stay close to the 2% target over the projection as tariff-related cost pressures are offset by excess supply,” Macklem added.
He highlighted that “uncertainty around this outlook is unusually high” due both to geopolitical risks and an upcoming review of the Canada-United States-Mexico Agreement.
“It’s also too early to tell how well the Canadian economy will adjust… The transition could be smoother than we expect… Alternatively, the labour market could weaken further as trade impacts deepen,” he warned.
Macklem emphasized that while monetary policy cannot address all sector-specific challenges caused by tariffs or compensate for structural damage, it can support overall stability: “Monetary policy cannot compensate for the structural damage caused by tariffs… But it can play a supporting role… while maintaining inflation close to the 2% target.”
He concluded: “The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”
The Bank of Canada operates within Canada’s financial sector focusing on monetary policy oversight and maintaining low and stable inflation rates (official website). Its efforts aim at safeguarding currency value while promoting economic resilience (official website). Tiff Macklem has served as governor since June 3, 2020 (official website).
