TD Sees Bank of Canada Staying on The Sidelines in Next Months After Wednesday's Hold Decision, Elevated Uncertainty Focus

10:58 AM EST, 01/28/2026 (MT Newswires) -- The Bank of Canada held its policy rate at 2.25% on Wednesday, in line with market expectations, said TD.

The opening statement noted that the BoC's outlook for growth and inflation "has not changed significantly" since the October Monetary policy Report (MPR) projection, but uncertainty about the outlook was a common theme, noted the bank. The ongoing uncertainty and tariffs are expected to continue to weigh on the Canadian economy.

The updated MPR showed growth is expected to register 1.1% in 2026 and 1.5% in 2027.

The BoC expects that inflation will continue to moderate in the coming months. Base-year effects from last year's GST/HST holiday will eventually drop out of the price calculation, and inflation should hold around the 2% target "over the projection as tariff-related cost pressures are offset by excess supply."

Importantly, the release noted that, "while Council judges the current policy rate is appropriated based on our outlook, the consensus was that elevated uncertainty makes it difficult to predict the timing or direction of the next change in the policy rate.".

Not much of a surprise here from the BoC as the data stream has essentially fallen in line with the BoC's expectations. Inflation has continued to moderate -- absent base effects from the GST/HST holiday --, and economic growth is generally in line with expectations, leaving the BoC to stay the course, added TD.

A widely expected hold, but the emphasis on uncertainty in the statement was prominent, stated the bank. The BoC emphasized the data-dependent approach in the coming months as the CUSMA review and geopolitical events could shift the outlook in 2026.

That said, TD's baseline outlook is relatively in line with the BoC below -- trend growth helping inflation continue to moderate. Under these conditions, the bank estimates the BoC to stay on the sidelines in the coming months.

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