Key TakeawaysThe Bank of Canada held its overnight interest rate steady for a second consecutive meeting.Policymakers cite economic vulnerability with the upcoming free trade renewal talks.Some analysts point to the Bank’s softening stance to call for the next rate move to be lower.

The Bank of Canada kept its key interest rate steady at 2.25% on Wednesday, its second consecutive hold, with an acknowledgement that the economic outlook remains fragile in the face of geopolitical uncertainties and unpredictable US trade policies. The decision to hold was in line with analyst expectations, but some are still pointing to Canada’s economic vulnerabilities as suggesting further interest rate cuts are not entirely off the table.

In the statement accompanying the decision, the Bank reiterated that the current policy rate remains appropriate as long as the economy continues to evolve as expected, but it added that “uncertainty is heightened and we are monitoring risks closely. If the outlook changes, we are prepared to respond.”

The Bank projected modest economic growth—1.1% in 2026 and 1.5% in 2027—against a backdrop of declining population growth and the pall of US protectionism. Policymakers also stressed that the one standout source of Canada’s economic fragility remains the upcoming review of the Canada-United States-Mexico Agreement.

After a cumulative 100 basis points of cuts in 2025, the central bank decided to move to the sidelines in December of last year, saying the monetary policy could only do so much against the trade turmoil.

Following the rate announcement, the Canadian dollar edged slightly higher against the US dollar to C$1.35, or 0.73 US cents, a level last seen in June 2025. The S&P/TSX Composite Index rose 38 points, or 0.06%, to 33,134.26, while the Morningstar Canada Index held steady at 5,894.6. The rate on Government of Canada two-year bond yields remained mostly unchanged at 2.58%.

What Analysts Think of the Bank of Canada’s Latest AnnouncementPolicy Rate Hinges on Material Outlook Change

“The Bank of Canada remains quite comfortable with where policy rates are for the time being, but vows that is ‘prepared to respond’ if need be. The opening statement reiterates that ‘elevated uncertainty makes it difficult to predict the timing or direction of the next change in the policy rate.’ It’s clearly going to require a material shift in the outlook to prompt a change in rates, but given the highly uncertain trade backdrop, a material shift is quite possible. On balance, there is little to move the needle here for markets. The Bank remains cautious amid heightened uncertainty. Unless and until there is a resolution on CUSMA negotiations or the economic data break either way, it’s clear the Bank has little appetite to move.”

—Douglas Porter, chief economist at BMO Economics

No Rate Move This Year, Unless Trade Talks Fail

“Notably, [Governor Tiff] Macklem’s statement mentions for the first time that ‘elevated uncertainty makes it difficult to predict the timing or direction of the next change in the policy rate’. This will catch the eye of investors holding more hawkish views, who have moved to price in roughly 10 basis points of hikes by the end of the year. We agree that the policy rate’s next move will be upwards, but we do not expect this to come until 2027, providing that CUSMA renegotiations have been wrapped up by then.”

—Bradley Saunders, North America economist at Capital Economics

Greater Odds of Rates Moving Lower than Higher

“They [the Bank of Canada policymakers] remain firmly neutral on where things go from here, saying that ‘it’s difficult to predict the timing or direction of the next move’. But if there’s a slight leaning here, it’s still towards some worries on the growth front due to uncertainties on trade, and a bit more comfort that underlying inflation is decelerating. The Bank hasn’t made any major changes in its forecasts, with an upside surprise in Q3 offset by a stall in growth in Q4 of 2025. We’ll stick to our forecast for no interest rate moves by the Bank in 2026, but see the odds of a further cut as more likely than a hike, given the potential minefield in trade negotiations ahead, and a starting point that still has significant economic slack.”

—Avery Shenfeld, chief economist at CIBC Capital Markets

Rate Cut Cycle Likely Not Over Yet

“We are less focused on the policy itself and more focused on where we may be headed over the course of the year. The statement leaned solidly to the dovish side with the Bank noting geopolitical uncertainty, a softer labour market and moderate growth expectations for 2026. Any thought of the Bank raising its overnight rate this year should be cast aside. In our view the Bank has let it be known that they are prepared to respond to any changes in the economy as necessary. To us that means that we may not have hit the end of cuts for this cycle. In short, this is not a hawkish pause.”

—Philip Petursson, chief investment strategist, IG Wealth Management

Rates Could Come Down In the First Half of 2026

“The Bank continues to express comfort with the progress on inflation, but struck a somewhat more cautious tone on employment, which is notable given the strength in labor market data through the fourth-quarter of 2025. The statement carried a subtle dovish bias, particularly with the addition that uncertainty has increased and risks are being monitored closely. When combined with the Bank’s explicit concern around upcoming USMCA negotiations and potential spillovers to trade and growth, the message is that the Bank of Canada is increasingly sensitive to downside risks. Consistent with our house view, this reinforces our expectation that the Bank will begin easing policy in the first-half of 2026.”

—Dustin Reid, chief strategist, fixed income at Mackenzie Investments

The Policy Rate Could Rise to 2.75% by Mid-2027

“We expect the next move by the Bank of Canada will likely be a hike in early 2027. With economic growth forecast to be a firmer footing next year, we believe the Bank will return the policy rate to a neutral stance and not begin a new monetary tightening cycle. After holding through 2026, the Bank of Canada will likely lift the policy rate back to 2.75% by mid-2027—our estimate of the neutral rate.

“Like most aspects of the Canadian outlook, the path ahead for the Bank of Canada will hinge on US-Canada trade policy and the upcoming renegotiation of the USMCA. In the unlikely event that the trade agreement falls apart entirely, we expect the Bank of Canada would drop the policy rate deeper into stimulative territory for an extended period.”

—Tony Stillo, director of Canada economics at Oxford Economics

Expect a Sustained Rate Hold, Unless Economic Outlook Weakens

“At this juncture—all things being equal—we do not expect the central bank to change its policy rate this year. Upcoming free-trade negotiations with the US and Mexico could prove contentious, so any policy shift on the central bank’s part would likely be in favor of cutting rates should growth slow, labor slack increase or if there is a more pronounced break in economic relations with the US.

“The central bank is clearly preparing investors and other domestic policymakers for an extended pause by noting the structural headwinds to the economy caused by US protectionism. Canada’s economic outlook would have to significantly change for the Bank of Canada to move in one direction or the other.”

—Joe Brusuelas, chief economist at RSM

A Rate Hike Not Likely Through 2026

“With fiscal stimulus expected to support growth and employment, the Bank has less incentive to push rates further into stimulative territory. Given ongoing uncertainty around trade and uneven underlying economic conditions, we do not anticipate any rate increases through 2026.”

—Ashish Dewan, investment strategist at Vanguard Canada

The author or authors do not own shares in any securities mentioned in this article. Find out about
Morningstar’s editorial policies.