Bank of Canada Expected to Hold Interest Rates Steady

The Bank of Canada (BoC) is widely expected to keep its key interest rate unchanged on Wednesday, following recent data showing the Canadian economy has remained stable and aligned with the central bank's projections despite pressure from U.S. tariffs.

After cutting rates by 25 basis points in late October, BoC Governor Tiff Macklem signaled that borrowing costs were at an appropriate level. He indicated the central bank would maintain its benchmark rate if the economic outlook held firm.

A Wait-and-See Approach

Last month, the Bank of Canada left its policy rate at 2.25%, which is considered the lower end of the neutral range—a level that neither stimulates nor restricts economic activity.

Analysts believe the bank will remain on the sidelines for now. "They will be content to see where things are headed before moving again," said Pedro Antunes, chief economist at the Conference Board of Canada. He added that the BoC is likely to resume rate cuts only if confronted with negative economic news.

The decision to hold is supported by the limited economic damage from U.S. tariffs on Canadian imports, with the impact largely confined to the steel, lumber, and auto sectors. The persistence of a North American trade agreement has helped contain the fallout.

Market Consensus Aligns with a Hold

The expectation for a steady policy is broadly shared among economists and financial markets. A recent survey of 35 economists revealed that nearly 75% anticipate the central bank will keep rates on hold through 2026. This represents a stronger consensus than in December, when just over 60% held that view.

Money markets reflect a similar sentiment, pricing in the possibility of Canadian monetary policy remaining on hold or even tilting slightly toward an easing bias through mid-2026. Projections then shift toward modest tightening in the final quarter of the year.

All Eyes on the Monetary Policy Report

The central bank will announce its decision at 9:45 a.m. EST (1445 GMT). Alongside the rate announcement, the BoC will release its quarterly Monetary Policy Report. This report will see the bank return to its previous practice of issuing single-point forecasts for key economic indicators.

The report is expected to include:

• An updated assessment of the economic impact of the federal budget announced by Prime Minister Mark Carney's government in November.

• The BoC's latest analysis of underlying inflation.

• Revised forecasts for the economy and the job market.

Royce Mendes, managing director and head of macro strategy at Desjardins Group, noted that a shift in the central bank's tone could be significant. "We anticipate that central bankers will sound less concerned about upside inflation risks and more concerned about downside growth risks," he wrote. This change, he added, could increase market speculation about a potential rate cut later this year.