The Bank of Canada is preparing to unveil its first interest rate decision of 2026 on January 28. Recent economic reports have presented mixed signals regarding inflation, GDP growth, and the job market, prompting speculation about potential actions.
Economic Context Before Rate Decision
Shannon Terrell, a financial analyst at NerdWallet Canada, noted that while a rate hold appears likely, the situation is precarious. “Unemployment is rising, and if the job market weakens further, it could stall,” she remarked. Holding rates could provide the Bank additional time to evaluate labor market stability.
Previous Interest Rate Announcement
The last update from the Bank occurred on December 10, 2025, when the key policy rate was maintained at 2.25%. This rate influences products like mortgages offered by commercial banks. Any changes made by the Bank could lead to different interest rates for mortgage applicants.
Impact on Canadians
If the Bank adjusts its key rate, Canadians with variable rate mortgages may see changes in their payments. The Bank of Canada sets its overnight lending rate based on extensive economic data and analysis to maintain a stable inflation target of around two percent while fostering economic growth.
- High inflation rates may prompt increased borrowing costs to bring prices down.
- Conversely, lowering rates can stimulate economic activity during sluggish periods.
Recent GDP reports indicated that Canada’s economy contracted by 0.3% in October. Continued slow growth may lead the Bank of Canada to consider further rate cuts to ease borrowing costs.
Economic Predictions
Economists are weighing in on the upcoming decision. Nathan Janzen, assistant chief economist at Royal Bank of Canada, believes the Bank will likely keep rates unchanged, citing a stabilization in the economic landscape. “If inflation trends towards the two percent target and the economy shows improvement, there’s little reason to lower rates,” he stated.
Derek Holt from the Bank of Nova Scotia shared a similar perspective, suggesting the Bank will utilize its communication strategies on January 28 but not enact immediate changes.
Inflation Trends
Consumer inflation reached 2.4% in December 2025, slightly increasing from 2.2% the previous month. The rise is partially attributed to the effects of Ottawa’s GST holiday in December 2024. The soaring cost of food remains a significant concern for Canadians experiencing higher living costs.
In 2025, the Bank of Canada implemented four interest rate cuts, with the last one in October. December’s unemployment rate stood at 6.8%, an increase from 6.5% in November, indicating potential challenges in the job market.
As the Bank of Canada approaches its first rate decision of 2026, all eyes will be on how it navigates these economic challenges while aiming to stabilize prices and support growth.
