BoC updates economic forecasts along with rate call
The Bank of Canada (BoC) elected to leave its policy interest rate unchanged at 2.25 per cent on Wednesday, in its first scheduled rate announcement of 2026.
The decision to hold was widely expected by economists and analysts with topline inflation rising to 2.4 per cent in December, close enough to the BoC's target rate of two per cent. Some underlying numbers, however, may be more concerning with grocery prices rising 5 per cent in December and CPI minus gasoline rising 3 per cent.
"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," a press release announcing the decision reads. "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."
"With fiscal stimulus expected to support growth and employment, the Bank has less incentive to push rates further into stimulative territory. Given ongoing uncertainty around trade and uneven underlying economic conditions, we do not anticipate any rate increases through 2026.” wrote Ashish Dewan, Investment Strategist at Vanguard Canada in response to the announcement.
The decision also came with updates to the BoC's economic outlook, last published in the October Monetary Policy Report.
"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 release reads. "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."
The BoC's business outlook survey released earlier in January found that business sentiment was subdued to end 2025, but had improved from the lows hit in Q2 of that year, at the height of US tariff tensions.
