Remember the days when we debated the next rate move by the Bank of Canada?

Today wasn’t one of them. This morning’s hold at 2.25%, the second one in a row, was widely anticipated by pretty much everyone, including us.

Finding the right balance

The Bank seems fairly comfortable where they are. The economy has been more resilient than expected, but core inflation is still sticky and slightly above target.

From the press release: “Governing Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today.”

The Bank could lower the rate to offset ongoing trade headwinds, but that would be inconsistent with keeping inflation in check. And raising the rate seems premature - the economy is not on a solid footing.

From recession to resiliency

If the rate pause is not the news, what is? The Monetary Policy Report (MPR). It contains a fresh set of economic forecasts, providing some guidance as to what Bank of Canada economists see ahead.

The Bank is forecasting Canadian GDP growth of 1.1% in 2026 and 1.5% in 2027. You can look at this in two different ways.

On the one hand, this growth forecast is underwhelming. Uncertainty, particularly around the CUSMA review, is holding back investment and the economy is losing its lift from population growth. The economy desperately needs a rotation towards investment and exports. We see these as conservative base case forecasts (our December outlook pencilled in national growth of 1.6% in 2026 and 1.8% in 2027).

On the other hand, the economy is performing better than feared. When the trade war kicked off, one tariff scenario in April ran by the Bank had real GDP contracting for four consecutive quarters. In reality, the economy contracted in only 2025Q2, and now the Bank is estimating growth in 2025 of 1.7% (up from 1.2% in October) - exactly in line with our own estimate.

As for inflation, the Bank says underlying, or core, inflation is sitting at about 2.5% - above the 2% target. But, over the forecast period, the Bank sees inflation near 2% “with trade-related cost pressures offset by excess supply.”

This is structural - the Bank can only do so much

In Davos, PM Mark Carney said the “old order is not coming back.” Times have changed, and Bank of Canada Governor Tiff Macklem seems to agree. The MPR points to the economy being on a lower path due to U.S. tariffs - about 1.5% below January 2025 projections by the end of 2026.

From the press conference:

“Monetary policy cannot compensate for the structural damage caused by tariffs, and it cannot target hard-hit sectors of the economy. But it can play a supporting role, helping the economy through this period of structural change, while maintaining inflation close to the 2% target.”

This is not the first time Macklem has talked about this. From September: “Monetary policy can’t reverse the damage caused by the ongoing trade conflicts. But structural reform could help improve Canada’s productivity and competitiveness.”

In other words, the plan to restore growth in Canada does not rest on more interest rate cuts, but on structural changes. The ‘big three’ most talked about are accelerating major projects, exporting more overseas, and freeing internal trade.

What’s next?

Our call remains that the Bank will keep its finger on the pause button in 2026. What could change that? Data. We’ll keep a close eye on upcoming releases to see if the economy and inflation are moving in line with Bank of Canada forecasts. The next fixed announcement date is March 18.

The key takeaway is that the big cuts are behind us, and our current view is that we're at the bottom of the rate cutting cycle. Moreover, the yield curve has been normalizing, with the 5-year government yield holding just below 3% since the start of the year and the 10-year around 3.4%.

After a few years of wild swings in short-term rates, this may seem boring. But for businesses and households planning ahead, rate stability is good. And given the current state of global affairs, there are enough other things to worry about. 

Answer to the previous trivia question: The 1906 census reported the population of Alberta as 185,412 people.

Today’s trivia question: When did the Bank of Canada begin setting its policy interest rate (a.k.a the target for the overnight rate) on eight fixed dates per year?