Economists and financial markets are overwhelmingly expecting the Bank of Canada to keep its benchmark interest rate unchanged when it delivers its first policy decision of 2026 on Wednesday, with some forecasters predicting rates could remain on hold for the entire year.
Market pricing compiled by LSEG Data & Analytics showed nearly an 89 per cent probability of a rate hold as of late last week, reflecting broad confidence that the central bank is comfortable with its current stance.
The policy rate has been set at 2.25 per cent since December, when the Bank of Canada paused after two consecutive quarter-point cuts in the latter half of 2025. At the time, Governor Tiff Macklem said monetary policy was “about the right level” to steer the economy through slowing growth while keeping inflation near target.
That message has been consistent, according to TD Bank economist Rishi Sondhi, who said policymakers have made it clear they see no urgent need to move rates unless the economy deviates sharply from expectations.
“The Bank has repeatedly indicated it is satisfied with the current policy stance, as long as economic conditions broadly evolve as anticipated,” Sondhi wrote in a note to clients. He added that only a pronounced slowdown in growth or a significant weakening in the labour market would likely prompt action.
Inflation remains close to the central bank’s two per cent target, though December’s reading came in slightly hotter than expected at 2.4 per cent. At the same time, the unemployment rate rose to 6.8 per cent, and early indicators suggest economic growth cooled toward the end of 2025.
Those mixed signals have not been enough to change expectations, said CIBC chief economist Avery Shenfeld. He noted that none of the data released since December has meaningfully altered the central bank’s outlook.
“The economy appears to have slowed again in the fourth quarter, inflation is not drifting far from target, and the unemployment rate remains uncomfortably high,” Shenfeld said. “That combination supports staying on hold.”
Alongside Wednesday’s decision, the Bank of Canada will publish updated forecasts for economic growth and inflation. CIBC is among several institutions that expect no rate increases or cuts throughout 2026.
Shenfeld said it is not unusual for central banks to pause for extended periods once they reach the end of an easing or tightening cycle, allowing households and businesses time to adjust to borrowing costs. However, he suggested Macklem may choose to strike a slightly more dovish tone to discourage markets from prematurely pricing in a rate hike later this year.
“When a central bank signals it’s finished cutting, markets often jump to the conclusion that the next move must be a hike,” Shenfeld said. “Managing those expectations is important.”
Interest rate expectations themselves can have powerful effects, influencing bond yields and, in turn, mortgage and loan rates. Shenfeld noted that while borrowing costs remain elevated, clearer signals that rate cuts are likely finished could prompt some homebuyers to act this spring instead of waiting for cheaper financing.
Businesses are also watching closely, though Shenfeld said interest rates have not been the dominant source of uncertainty recently. Instead, trade risks particularly the upcoming review of the Canada–U.S.–Mexico trade agreement and the possibility of renewed U.S. tariffs loom larger over the economic outlook.
“Trade remains the biggest cloud on the horizon,” Shenfeld said. “If trade barriers worsen, that could ultimately force the Bank of Canada to abandon its holding pattern and provide additional stimulus.”
For now, however, economists see little reason for policymakers to move, suggesting stability rather than further easing or tightening will define Canada’s monetary policy as 2026 gets underway.
