- Overnight rate unchanged at 2.25%
- BOC says The outlook for the global and Canadian economies is little changed vs Oct forecast
- the Bank expects inflation to stay close to the 2% target over the projection period
- Prior statement said “current policy rate at about the right level” and the new one says “Governing Council judges the current policy rate remains appropriate”
- The statement repeats “if the outlook changes, we are prepared to respond”
- “Economic growth is projected to be modest in the near term as population growth slows and Canada adjusts to US protectionism”
- GDP growth in the fourth quarter likely stalled
Ahead of the statement, the market was pricing in 8 bps of rate hikes in 2026 and that ticked up to 9 bps afterwards. The Canadian dollar strengthened slightly.
Highlights from the MPR:
- 2025 GDP 1.7% vs 1.2% prior
- 2026 GDP forecast 1.1% vs 1.6% prior
- 2027 GDP forecast 1.5% vs 1.6% prior
- 2026 CPI 2.0% vs 2.1% prior
The Bank of Canada notes that Statistics Canada revisions to historical gross domestic product data show that the
Canadian economy was stronger going into 2025 than previously thought with GDP revised up 1.7%
International estimates:
- USA 2026 GDP seen at 2.6% vs 2.2% prior
- Eurozone seen at 1.2% vs 1.0% prior
- China seen at 4.5% vs 4.4% prior
- Global GDP seen at 3.2% vs 2.9% prior
Full text of the statement:
The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
The outlook for the global and Canadian economies is little changed relative to the projection in the October Monetary Policy Report (MPR). However, the outlook is vulnerable to unpredictable US trade policies and geopolitical risks.
Economic growth in the United States continues to outpace expectations and is projected to remain solid, driven by AI-related investment and consumer spending. Tariffs are pushing up US inflation, although their effect is expected to fade gradually later this year. In the euro area, growth has been supported by activity in service sectors and will get additional support from fiscal policy. China’s GDP growth is expected to slow gradually, as weakening domestic demand offsets strength in exports. Overall, the Bank expects global growth to average about 3% over the projection horizon.
Global financial conditions have remained accommodative overall. Recent weakness in the US dollar has pushed the Canadian dollar above 72 cents, roughly where it had been since the October MPR. Oil prices have been fluctuating in response to geopolitical events and, going forward, are assumed to be slightly below the levels in the October report.
US trade restrictions and uncertainty continue to disrupt growth in Canada. After a strong third quarter, GDP growth in the fourth quarter likely stalled. Exports continue to be buffeted by US tariffs, while domestic demand appears to be picking up. Employment has risen in recent months. Still, the unemployment rate remains elevated at 6.8% and relatively few businesses say they plan to hire more workers.
Economic growth is projected to be modest in the near term as population growth slows and Canada adjusts to US protectionism. In the projection, consumer spending holds up and business investment strengthens gradually, with fiscal policy providing some support. The Bank projects growth of 1.1% in 2026 and 1.5% in 2027, broadly in line with the October projection. A key source of uncertainty is the upcoming review of the Canada-US-Mexico Agreement.
CPI inflation picked up in December to 2.4%, boosted by base-year effects linked to last winter’s GST/HST holiday. Excluding the effect of changes in taxes, inflation has been slowing since September. The Bank’s preferred measures of core inflation have eased from 3% in October to around 2½% in December. Inflation was 2.1% in 2025 and the Bank expects inflation to stay close to the 2% target over the projection period, with trade-related cost pressures 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. Governing Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today. However, uncertainty is heightened and we are monitoring risks closely. If the outlook changes, we are prepared to respond. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.
This article was written by Adam Button at investinglive.com.