The Bank of Canada (BoC) is widely expected to keep its policy interest rate at 2.25% on Wednesday. Economists and money markets, however, are divided over the future path of Canada’s monetary policy amid economic uncertainty.
Since December, money markets have started pricing in the possibility of a rate hike later this year after a long pause. Some economists remain cautious, citing uncertainty surrounding the renegotiation of the United States-Mexico-Canada (USMCA) trade pact.
A Reuters poll of 35 economists showed nearly 75% expect the central bank to maintain rates through 2026, up from just over 60% in December.
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Money markets currently expect rates to stay on hold or slightly tilt toward easing through mid-2026, with modest tightening possible in the final quarter.
The central bank cut rates by 25 basis points in October and a total of 100 basis points last year, bringing rates to the lower end of its neutral range, where the economy is neither stimulated nor restricted.
Doug Porter, chief economist at BMO Capital Markets, said, “We are still in the zone of what the bank thinks to be neutral. If the unemployment rate is rising and we have trade uncertainty, why would rates just stay neutral?”
Economic Data Shows Mixed Signals
A recent BoC survey indicated subdued business sentiment amid trade tensions, while consumers remain concerned about jobs and debt. Despite this, tariffs have largely affected only steel, aluminum, lumber, and automotive sectors. Consumer prices have remained stable, economic growth has been modest, and job creation has been solid from September through November.
Tony Stillo, director of Canada Economics at Oxford Economics, said, “Our baseline is that the BoC holds rates until next year, then raises them to return to the neutral midpoint. This assumes a successful renegotiation of USMCA, which could reduce tariffs on some sectors.”
The BoC will announce its monetary policy decision on January 29 at 9:45 a.m. ET (1345 GMT). It will also release its quarterly Monetary Policy Report, updating forecasts on the impact of the federal budget on Canada’s economy.
Esther Ososanya is an investigative journalist with Pinnacle Daily, reporting across health, business, environment, metro, Fct and crime. Known for her bold, empathetic storytelling, she uncovers hidden truths, challenges broken systems, and gives voice to overlooked Nigerians. Her work drives national conversations and demands accountability one powerful story at a time.
