Ottawa (Rajeev Sharma): The Bank of Canada held its benchmark interest rate steady on Wednesday, maintaining the policy rate at 2.25 per cent, while forecasting a gradual recovery the Canadian economy following the impact of U.S. tariffs
The decision marks the central bank’s first rate announcement of the year and was widely anticipated by economists. The bank paused its rate-cutting cycle in December, and Governor Tiff Macklem said recent economic developments have largely unfolded in line with expectations.
However, Macklem cautioned that uncertainty remains “unusually high,” citing ongoing geopolitical risks and the upcoming review of the Canada-U.S.-Mexico Agreement. He said it is still too early to assess how effectively the Canadian economy will adapt to existing tariffs and continued trade-related uncertainty.
According to Macklem, the bank’s governing council views the current policy rate as appropriate based on its economic outlook. Still, he noted that predicting the timing or direction of the next rate move remains challenging.
Alongside the rate decision, the Bank of Canada released updated projections for economic growth and inflation. After a strong showing in the third quarter, the central bank now estimates that economic growth stalled in the final quarter of 2025. Policymakers pointed to volatility in exports and business activity as firms respond to tariff-related pressures.
The bank estimates that Canada’s economy grew by an average of 1.7 per cent last year. Growth is expected to slow to 1.1 per cent in 2026 before picking up modestly to 1.5 per cent in 2027, as businesses gradually adjust to new trade conditions.
In contrast, global economic growth is projected to remain stronger, averaging just over three per cent in the coming years.
The Bank of Canada said declining net exports are a key contributor to Canada’s comparatively weaker outlook. Slower population growth was also identified as a factor weighing on overall economic activity.
Inflation forecasts remain complicated by temporary tax measures, including the federal government’s two-month tax holiday a year ago and lingering effects from the removal of the consumer carbon price last spring. Despite these factors, the central bank expects inflation to hover near its two per cent target over the forecast period, as higher trade-related costs are balanced by softer economic conditions.
The Bank of Canada’s next interest rate decision is scheduled for March 18.
