Bank of Canada Monetary Policy Decision

Monetary Policy Decision Monetary Policy

Source: Bank of Canada
Source Link: https://www.bankofcanada.ca/
Next Release(s): March 18th, 2026 9:45 AM

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The Bank of Canada held its policy rate at 2.25% in January 2026, keeping settings unchanged as growth slows and inflation stays near target.
- The overnight rate remained 2.25% (Bank Rate 2.5%, deposit rate 2.20%), indicating continued policy stability amid heightened trade and geopolitical uncertainty.
- Global growth is projected to average about 3%, supported by solid U.S. consumer spending and AI investment, service-sector strength in Europe, and offset by gradually slowing domestic demand in China.
- U.S. tariffs are pushing inflation higher in the near term, though the Bank expects these effects to fade later in the year, suggesting temporary trade-related price pressure.
- Canada’s GDP growth likely stalled in Q4 after a strong Q3, with exports weighed down by U.S. trade restrictions while domestic demand shows early signs of improvement.
- Employment has risen recently, but the unemployment rate remains elevated at 6.8%, and few firms report plans to increase hiring, pointing to continued labor market slack.
- The Bank projects Canadian growth of 1.1% in 2026 and 1.5% in 2027, broadly unchanged from October, reflecting modest near-term momentum as the economy adjusts to trade frictions.
- CPI inflation rose to 2.4% YoY in December, boosted by tax-related base effects, while core inflation eased to around 2.5%, aligning underlying price pressures closer to the 2% target.
- Monetary Policy Report: January 2026
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The Bank of Canada held its policy rate at 2.25% in December 2025, maintaining a steady stance as inflation stays near target and economic conditions remain mixed across sectors.
- Canada’s economy grew 2.6% QoQ in Q3, driven mostly by volatile trade flows, while final domestic demand was flat, underscoring uneven underlying momentum.
- GDP is expected to weaken in Q4, as net exports decline even as domestic demand improves slightly; growth is projected to pick up in 2026, though quarterly volatility may persist.
- The unemployment rate fell to 6.5% in November, with solid employment gains over the past three months, but trade-sensitive sectors remain weak and nationwide hiring intentions are still subdued.
- CPI inflation slowed to 2.2% YoY in October, with gasoline prices dragging the headline rate lower; food inflation also eased, keeping CPI near the 2% target for more than a year.
- Core inflation remains between 2.5% and 3%, and the Bank estimates underlying inflation at roughly 2.5%, consistent with ongoing but manageable price pressures.
- Near-term CPI is expected to rise temporarily due to last year’s GST/HST holiday effects, but the Bank anticipates that economic slack will offset trade-related cost pressures, keeping inflation close to target.
- Global conditions remain mixed, with resilient US consumption and AI-driven investment, stronger-than-expected euro area growth, and continued softness in China’s domestic demand; financial conditions, oil prices, and the Canadian dollar are little changed since October.
- The Bank indicated that the current rate is “about the right level” if the outlook unfolds as expected, but emphasized readiness to adjust policy should inflation or growth deviate materially.
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The Bank of Canada lowered its policy rate by 25 bps to 2.25% in October 2025, citing weak growth, soft labor market conditions, and inflation near the 2% target as trade-related uncertainty continues to weigh on activity.
- The overnight rate target is now 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.2%. The decision reflects persistent economic slack and easing inflationary pressures.
- Canada’s GDP contracted -1.6% QoQ in Q2 2025, driven by falling exports and weak business investment linked to US trade actions. Growth is expected to remain subdued through year-end before gradually recovering.
- The Bank projects GDP growth of +1.2% in 2025, +1.1% in 2026, and +1.6% in 2027, with excess capacity absorbed only gradually as exports and investment improve.
- The labor market remains soft, with the unemployment rate steady at 7.1% in September. Job losses persist in trade-sensitive sectors such as autos, steel, aluminum, and lumber, while overall hiring remains weak.
- CPI inflation reached 2.4% YoY in September, slightly above expectations, while inflation excluding taxes stood at 2.9%. Core inflation measures have stayed around 3%, suggesting stickiness in underlying price pressures.
- Broader indicators point to underlying inflation near 2.5%, and the Bank expects headline CPI to remain close to the 2% target over the projection horizon.
- Globally, growth is slowing from about 3¼% in 2025 to roughly 3% in 2026–27, as trade tensions weigh on investment. US activity remains strong, supported by AI investment, though tariffs are lifting consumer prices.
- The Bank pointed to “ongoing weakness in the economy” and expectations that inflation would “remain close to the 2% target” as its motivations for cutting.
- The Bank emphasized that while monetary policy can support adjustment, structural damage from trade disruptions has reduced the economy’s capacity, limiting the scope for stimulus. It remains ready to adjust policy if the outlook deteriorates.
- Monetary Policy Report: October 2025
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The Bank of Canada lowered its policy rate by 25 bps to 2.5% in September 2025, citing slower growth, weaker labor market conditions, and easing inflation momentum as trade disruptions continue to weigh on the outlook.
- Canada’s GDP fell about -1.5% QoQ in Q2 2025, with tariffs and uncertainty driving a sharp -27% drop in exports, reversing gains from Q1.
- Business investment also declined in Q2, while consumption and housing activity remained resilient, providing some offset.
- Employment has fallen in the past two months, with job losses concentrated in trade-sensitive sectors and overall hiring intentions weak.
- The unemployment rate rose to 7.1% in August, while wage growth has continued to ease.
- CPI inflation held at 1.9% YoY in August, with core measures around 3% in recent months, though monthly upward momentum has dissipated.
- Underlying inflation is estimated near 2.5%, and the removal of retaliatory tariffs is expected to reduce some price pressures.
- The Bank emphasized that risks remain tied to trade disruptions, their spillovers into investment and labor markets, and how supply chain shifts affect inflation dynamics.
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The Bank of Canada held its policy rate at 2.75% in July 2025, citing a cautious outlook amid persistent trade uncertainty and mixed inflation signals.
- GDP is estimated to have declined -1.5% QoQ in Q2 2025 following a strong Q1 driven by pre-tariff export pull-forwards.
- CPI inflation rose slightly to 1.9% in June, while core inflation excluding taxes rose to 2.5% YoY, largely on non-energy goods.
- The unemployment rate increased to 6.9% in June, with labor market softness concentrated in trade-sensitive sectors.
- The Bank now assesses excess supply in the economy has grown since January, suggesting increased slack.
- In its base tariff scenario, GDP is expected to rebound modestly (+1.0% H2 2025), but escalation or de-escalation of tariffs could shift the outlook considerably.
Monetary Policy Report: July 2025
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The Bank of Canada held its policy rate at 2.75% in June, citing persistent trade uncertainty and mixed signals on inflation and economic activity.
- Q1 GDP rose 2.2% QoQ annualized, slightly above forecasts, driven by export pull-forwards and inventory gains, while final domestic demand was flat.
- CPI inflation fell to 1.7% in April due to the removal of the federal carbon tax; excluding taxes, inflation rose to 2.3%.
- Core inflation measures ticked up, and businesses expect to pass on tariff-related cost increases to consumers.
- The unemployment rate increased to 6.9%, with job losses concentrated in trade-exposed sectors.
- The Bank signaled caution amid upside inflation risks and downside growth risks, awaiting further clarity on US trade policy impacts.
- Key quote: “With uncertainty about US tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on US trade policy and its impacts.”
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The Bank of Canada keeps its policy rate at 2.75% and braces for the impacts of US trade policy.
- The BoC notes that US trade policy has “increased uncertainty, diminished prospects for economic growth, and raised inflation expectations.”
- The BoC is trying to balance how tariffs affect the inflation outlook and the growth outlook, and it’s decision to not change the policy rate was out of caution and the need for more information.
- Key quote: "Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What it can and must do is maintain price stability for Canadians."
- The BoC highlights two different scenarios. In both, economic activity weakens (though scenario 1 sees a smaller decline than in scenario 2), but in the first scenario, inflation remains contained while in the second, inflation jumps in earl 2026.
- Monetary Policy Report: April 2025
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The Bank of Canada cut its overnight rate by 25 bps to 2.75%.
- The BoC pointed to an increase in uncertainty surrounded the economic outlook as a result of the intensifying trade war with the US: “…heightened trade tensions and tariffs imposed by the United States will likely slow the pace of economic activity and increase inflationary pressures in Canada. The economic outlook continues to be subject to more-than-usual uncertainty because of the rapidly evolving policy landscape.“
- The BoC says that it will try and assess whether future inflation changes are being caused by changes in costs from tariffs or changes in demand flowing to prices.
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