Bank of Canada Keeps Rates Unchanged as It Warns It Outlook is Clouded by U.S. Trade Policies

10:03 AM EST, 01/28/2026 (MT Newswires) -- The Bank of Canada, as expected, held its overnight interest rate steady at its Wednesday meeting.

In its press release accompanying the rate decision the bank said its outlook for the global and Canadian economy is little changed from its October Monetary Policy Report, but noted its outlook is "vulnerable to unpredictable US trade policies and geopolitical risks".

"Economic growth in the United States continues to outpace expectations and is projected to remain solid, driven by AI-related investment and consumer spending. Tariffs are pushing up US inflation, although their effect is expected to fade gradually later this year. In the euro area, growth has been supported by activity in service sectors and will get additional support from fiscal policy. China's GDP growth is expected to slow gradually, as weakening domestic demand offsets strength in exports. Overall, the Bank expects global growth to average about 3% over the projection horizon," the bank noted.

The central bank said global financial conditions remain accommodative, while a weak U.S. dollar has pushed the exchange rate for the Canadian dollar to US$0.72, roughly where it was in October, while oil prices are fluctuating but are under the level they traded for when it released its prior Monetary Policy Report.

The bank said U.S. tariffs and trade uncertainty continue to weigh on Canada's economy, with little growth expected in the fourth quarter.

"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 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 bank's press release stated.

The Bank of Canada noted inflation is slowing, despite a December rise to 2.4% due to year-prior cuts to the good and services tax (GST) that lowered the cost of restaurant meals and other items. "Excluding the effect of changes in taxes, inflation has been slowing since September. The Bank's preferred measures of core inflation have eased from 3% in October to around 21/2% 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," it said.

The bank said it remains focused on keeping inflation close to 2% while supporting the economy amid the structural changes brought by the U.S. tariffs.

"Governing Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today. However, uncertainty is heightened and we are monitoring risks closely. If the outlook changes, we are prepared to respond. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval," the bank noted.

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