Bank of Canada Holding Interest Rates Steady While Inflation Cools and Trade Uncertainty Looms

What Happened

The Bank of Canada held its interest rate steady at 2.25% on January 28, 2026—and looks set to do the same on March 18. This is the second hold in a row.

Here's what the economic data shows:

Inflation is cooling. Canada's headline inflation (the overall price increase you see at the grocery store and gas pump) dropped to 2.3% in January from 2.4% in December. Core inflation (a measure economists use that strips out volatile items like gas) fell to 2.4%—the lowest in nearly five years.

The biggest relief: housing inflation finally slowed. For the first time in almost five years, shelter costs (rent and home prices) grew less than 2% year-over-year. That matters because shelter has been the biggest driver of inflation.

But the economy has other problems. Q4 2025 GDP contracted slightly. Exports are down 4%. Companies have paused hiring. And about 25,000 jobs were lost in January despite unemployment dipping to 6.5%.

Why It Matters

For mortgage holders: About 33% of Canadian homeowners will face higher payments by the end of 2026 when their mortgages renew. If you have a fixed-rate mortgage renewing, expect monthly payments to jump about 20% on average. But rates have stabilized—the best 5-year fixed rate is currently 3.64%, and the best variable is 3.34%.

For savers: Low interest rates mean savings accounts and GICs (guaranteed investment certificates—basically savings accounts that lock your money away for higher returns) won't pay much.

For investors: Canadian banks benefit from stable rates because it keeps their profit margins steady. But weak economic growth and mortgage renewal pain could hurt credit quality down the road.

For workers: Job losses and slow growth suggest the economy is fragile. The central bank likely won't cut rates anytime soon—it's waiting to see if inflation stays under control.

What to Watch

• March 18, 2026: The next BoC decision. Markets assign only 7–8% odds of a rate cut; a hold is almost certain.
• March 16, 2026: February inflation data drops. This could shift expectations for future rate moves.
• July 1, 2026: Canada's CUSMA trade deal (the agreement that keeps most Canadian exports to the U.S. tariff-free) enters formal review. An unfavorable outcome could hurt Canadian exporters and GDP growth—which might force the BoC to act.
• RBC and TD forecasts: RBC expects rates to stay at 2.25% through 2026 and rise to 3.25% by end of 2027. TD expects rates to hold through end of 2027. This is not a consensus—watch for revisions.