Key Takeaways
- The Bank of Canada is set to announce its first interest rate decision of the year on January 28
- A rate hold is probable, but the case for a cut continues to mount due to rising unemployment and a potentially stalling job market
- The Bank of Canada’s decision will impact commercial lenders and Canadians with variable rate mortgages
- Economists expect the Bank of Canada to hold steady, citing signs of stabilizing economic growth and inflation trending towards the 2% target
- The decision will be influenced by economic data, including GDP, consumer inflation, and the job market
Introduction to the Bank of Canada’s Interest Rate Decision
The Bank of Canada is set to make its first announcement on interest rates this year on January 28. This decision comes after several reports on the Canadian economy, including consumer inflation, economic growth as measured by GDP, and the job market, which have sent mixed signals on the state of the economy. According to Shannon Terrell, a financial expert at NerdWallet Canada, "A rate hold seems probable but the case for a cut continues to mount. Unemployment is on the uptick and if the job market loses any more steam, it’s at risk of stalling out." The Bank of Canada’s decision will have a significant impact on commercial lenders and Canadians with variable rate mortgages.
The Impact of Interest Rate Changes on Canadians
Commercial lenders like the big banks will offer products like mortgages to customers at interest rates that build off what is set by the Bank of Canada at these meetings. If the Bank of Canada changes its key rate, then Canadians who are applying for a mortgage may end up with a different rate from their lender. Additionally, if a customer has a variable rate mortgage, then the amount they pay on a regular basis may change depending on the central bank’s policy rate decision. This can have a significant impact on a person’s monthly budget and financial planning. For example, a change in interest rates can affect the amount of money a person can borrow, and the amount of interest they pay over the life of the loan.
The Bank of Canada’s Mandate and Decision-Making Process
The Bank of Canada adjusts its overnight lending rate based on economic data and expert analysis. The Bank has a mandate to keep prices for goods and services relatively stable at an inflation rate of about two per cent, while also encouraging economic growth. If inflation and prices for goods and services get too high, like after the pandemic, then rates may go up to make money more expensive to borrow and bring down inflation. Conversely, if economic growth slows so much that a nation risks slipping into a recession, then borrowing rates may be lowered to spur more activity and allow businesses to thrive. The Bank of Canada’s decision-making process involves careful consideration of various economic indicators, including GDP, inflation, and employment rates.
Economic Indicators and Their Impact on the Bank of Canada’s Decision
The latest report on GDP showed Canada’s economy shrank by 0.3 per cent in October. Continued periods of slow or weak economic growth may signal the Bank of Canada to cut rates again in order to make borrowing money more affordable for businesses and consumers alike. On the other hand, consumer inflation topped 2.4 per cent in December 2025, compared to a year earlier, which is up from 2.2 per cent the month before. Although this means inflation is on the rise, Statistics Canada said a big reason for this was taking into account Ottawa’s GST holiday in December 2024. The cost of food remains a concern for Canadians struggling with the higher cost of living. The Bank of Canada will need to carefully weigh these competing factors when making its decision.
Economists’ Expectations and Predictions
After seeing last month’s report on consumer inflation and the job market, an economist at Royal Bank of Canada said they think the central bank won’t make any changes this time. "The BoC will be encouraged by further signs that inflation is broadly trending back towards the two per cent target, but the broader economic backdrop has also shown signs of stabilizing with the unemployment rate beginning to edge lower," said Nathan Janzen, assistant chief economist at Royal Bank of Canada. Derek Holt, head of capital markets economics at the Bank of Nova Scotia, offered similar predictions. "The Bank of Canada will fire off everything it has by way of communication tools on Wednesday—and do nothing," said Holt. However, some economists also predict that the Bank of Canada may lower interest rates in the near future if the job market continues to weaken.
Conclusion and Future Outlook
The Bank of Canada’s interest rate decision on January 28 will be closely watched by Canadians and economists alike. While a rate hold is probable, the case for a cut continues to mount due to rising unemployment and a potentially stalling job market. The Bank of Canada’s decision will have a significant impact on commercial lenders and Canadians with variable rate mortgages. As the economy continues to evolve, it will be important to monitor economic indicators and adjust monetary policy accordingly. The Bank of Canada’s goal is to keep inflation low and stable, while also promoting economic growth and employment. By carefully considering various economic indicators and making informed decisions, the Bank of Canada can help to ensure the stability and prosperity of the Canadian economy.