Bank of Canada Maintains Interest Rate at 2.25% Amid Economic Uncertainty
In a widely anticipated move, the Bank of Canada announced on Wednesday that it is holding its policy interest rate steady at 2.25%. This decision aligns with the predictions of many economists who have been closely monitoring the central bank's stance in a volatile economic climate.
Governor Macklem Highlights Persistent Forecasts and Elevated Risks
Governor Tiff Macklem stated that the bank's projections for economic growth and inflation in Canada have not changed significantly since its October assessment. However, he emphasized that uncertainty surrounding these forecasts is heightened, with a wider range of possible outcomes than usual.
"U.S. trade policy remains unpredictable, and geopolitical risks are elevated," Macklem noted in a prepared statement. He specifically pointed to the upcoming review of the Canada-U.S.-Mexico agreement as a key factor contributing to this uncertainty.
Impact of Trade Uncertainty on Investment and Employment
Macklem explained that U.S. tariffs and the associated uncertainty have negatively impacted business investment and weakened employment. Industries severely affected by tariffs reduced jobs in the first half of 2025, though the labour market showed some improvement in recent months.
"It's also too early to tell how well the Canadian economy will adjust to current tariffs and ongoing uncertainty," he said. "The transition to the new trade environment could be smoother than we expect, with stronger business and household spending."
Potential Economic Scenarios and Rate Direction
However, Macklem cautioned about potential downside risks. "It's possible that the labour market could weaken further as trade impacts deepen, leading to lower household spending. Financial conditions could also tighten if volatility returns to markets."
This elevated uncertainty makes it challenging to predict the timing or direction of the next change in the policy rate, according to the Governor.
Economic Growth and Inflation Projections
Regarding Canada's economic outlook, Macklem stated that gross domestic product is expected to grow modestly at 1.1% in 2026 and 1.5% in 2027 as businesses adapt to new trade realities. These figures remain consistent with the bank's October projection.
The Bank of Canada projects that inflation will hold around its 2% target, as tariff-related cost pressures are offset by excess supply resulting from a weaker economy.
The central bank's decision reflects a cautious approach amid ongoing trade tensions and global economic volatility, with policymakers carefully balancing growth concerns against inflationary pressures.
