Policy rate remains at 2.25% for second straight meeting
The Bank of Canada on Wednesday held its benchmark policy rate at 2.25%, a move that was widely expected by markets. Governor Tiff Macklem said elevated trade uncertainty is making it difficult to predict the timing or direction of the next rate change.
In a quarterly monetary policy report, the central bank maintained its outlook for modest economic growth in 2026 and 2027 and reiterated that inflation is expected to remain close to its 2% target.
Tariffs and geopolitics cloud the outlook
Macklem highlighted ongoing uncertainty tied to U.S. trade policy, including tariffs affecting sectors such as steel, autos, and aluminum. He also cited geopolitical risks and the upcoming review of the Canada-United States-Mexico Agreement as key factors weighing on the outlook.
“Elevated uncertainty makes it difficult to predict the timing or direction of the next change in the policy rate,” Macklem said following the decision.
Markets split on future policy direction
Economists remain divided on where Canadian monetary policy is headed. Some expect another rate cut later this year to support the economy, while money markets are currently pricing in no cuts through 2026, with expectations leaning toward a possible hike late next year.
Following the announcement, the Canadian dollar strengthened, rising 0.28% to C$1.3535 against the U.S. dollar.
Growth outlook revised higher for 2025
The central bank revised its estimate for 2025 economic growth to 1.7%, up from the 1.2% forecast in October. The outlook for 2026 remains unchanged at 1.1%, while the 2027 growth projection was slightly lowered to 1.5%.
Macklem said household spending is expected to grow modestly, supported by previous rate cuts and rising disposable incomes, while business investment should strengthen gradually.
Concerns over U.S. central bank independence
Macklem also noted that uncertainty has been amplified by concerns over the independence of the U.S. Federal Reserve, following moves by the Trump administration to open a criminal investigation into Fed Chair Jerome Powell.
Earlier this month, Macklem and other major central bank leaders issued a joint statement supporting Powell. The Federal Reserve is also expected to hold rates steady at its policy meeting later Wednesday.
