The Bank of Canada is set to make its first announcement on interest rates this year on Jan. 28.
This comes after several reports on the Canadian economy, including consumer inflation, economic growth as measured by GDP and the job market, which have sent mixed signals on the state of the economy.
“A rate hold seems probable but the case for a cut continues to mount. Unemployment is on the uptick and if the job market loses any more steam, it’s at risk of stalling out,” said Shannon Terrell, a financial expert at NerdWallet Canada in a written note.
“Still, a rate hold buys the Bank time to assess the state of the country’s labour while holding steady for everyday borrowers.”
The last interest rate announcement from the Bank was on Dec. 10, 2025, when it held its key policy rate at 2.25 per cent.
Commercial lenders like the big banks will offer products like mortgages to customers at interest rates that build off what is set by the Bank of Canada at these meetings.
If the Bank of Canada changes its key rate, then Canadians who are applying for a mortgage may end up with a different rate from their lender.
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If another customer has a variable rate mortgage, then the amount they pay on a regular basis may change depending on the central bank’s policy rate decision.
The Bank of Canada adjusts its overnight lending rate based off of economic data and expert analysis. The Bank has a mandate to keep prices for goods and services relatively stable at an inflation rate of about two per cent, while also encouraging economic growth.
If inflation and prices for goods and services get too high, like after the pandemic, then rates may go up to make money more expensive to borrow and bring down inflation.
Conversely, if economic growth slows so much that a nation risks slipping into a recession, then borrowing rates may be lowered to spur more activity and allow businesses to thrive.
The latest report on GDP, or Gross Domestic Product, showed Canada’s economy shrank by 0.3 per cent in October.
Continued periods of slow or weak economic growth may signal the Bank of Canada to cut rates again in order to make borrowing money more affordable for businesses and consumers alike.
After seeing last month’s report on consumer inflation and the job market, an economist at Royal Bank of Canada said they think the central bank won’t make any changes this time.
“As long as the economic backdrop shows further signs of improvement, and inflation remains at or above two per cent target rates, there is little reason for the BoC to lower interest rates further.”
Derek Holt, head of capital markets economics at the Bank of Nova Scotia, offered similar predictions.
“The Bank of Canada will fire off everything it has by way of communication tools on Wednesday—and do nothing,” said Holt in a written note.
“Nothing by way of immediate actions, that is, but they may help to further inform key questions concerning their forward bias as it feeds into cut, hold, hike debates.”
Consumer inflation topped 2.4 per cent in December 2025, compared to a year earlier, which is up from 2.2 per cent the month before.
Although this means inflation is on the rise, Statistics Canada said a big reason for this was taking into account Ottawa’s GST holiday in December 2024.
The cost of food remains a concern for Canadians struggling with the higher cost of living.
At the December meeting, Gov. Tiff Macklem at the Bank of Canada acknowledged that although inflation was now roughly in line with their targets, “prices have not come down.”
2025 saw four interest rate cuts, with the last one being in October, and after a pause to the rate cycle in December, another on Wednesday would be the second straight hold.
December’s unemployment rate topped 6.8 per cent, which was up from 6.5 per cent in November, and a weaker job market may also signal another cut in the near future.
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