Bank Of Canada Holds Rates; Macklem Says Outlook Largely Unchanged, Uncertainty High

10:17 AM EST, 01/28/2026 (MT Newswires) -- The Bank of Canada's forecast for economic growth and inflation in the country hasn't changed significantly since its October projection, said Governor Tiff Macklem after the BoC decided to leave rates on hold Wednesday.

As the Canadian economy continues to adjust to United States trade restrictions, Canada's central bank expects gross domestic product to grow modestly and inflation to stay close to the 2% target, noted Governor Macklem in his published press conference opening statement.

Macklem's press conference is slated to start at 10:30 a.m. ET Wednesday.

However, uncertainty around the BoC forecast is heightened, and the range of possible outcomes is wider than usual, stated the governor. U.S. trade policy remains unpredictable, and geopolitical risks are elevated.

Governing Council judges that the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published on Wednesday, he pointed out. With heightened uncertainty, the BoC is monitoring risks closely. If the outlook changes, the BoC is prepared to respond.

Overall, economic growth is expected to pick up gradually. In the Monetary Policy Report published also on Wednesday, the BoC projects annual average GDP growth of 1.1% this year and 1.5% in 2027. October's MPR saw growth at 1.1% this year and at 1.6% in 2027.

Inflation averaged 2.1% last year and has now been within the 1% to 3% band for two years. If the BoC focuses on recent movements, CPI inflation rose to 2.4% in December, boosted by base-year effects linked to last winter's GST/HST holiday. The BoC's preferred measures of core inflation have eased from 3% in October to around 2.5% in December. The BoC expects CPI inflation to stay close to the 2% target over the projection as tariff-related cost pressures are offset by excess supply.

Uncertainty around this outlook is "unusually high," added Macklem.

Geopolitical risks are elevated and the upcoming review of the Canada-United States-Mexico Agreement is an important risk to the outlook.

It's also too early to tell how well the Canadian economy will adjust to current tariffs and ongoing uncertainty. The transition to the new trade environment could be smoother than BoC expects, with stronger business and household spending, said the governor. Alternatively, the labor market could weaken further as trade impacts deepen, leading to lower household spending. Financial conditions could also tighten if volatility returns to markets.

While Council judges the current policy rate "appropriate" based on its outlook, the consensus was that elevated uncertainty makes it difficult to predict the timing or direction of the next change in the policy rate, according to Macklem.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.