Bank of Canada holds interest rate at 2.25%, with CUSMA review an 'important risk'

camber of Canada holds stake value becalm in first announcement of 2026

The Bank of Canada has held its key interest rate at 2.25 per cent for a second consecutive meeting, a move that was widely expected by analysts.

The central bank's economic outlook has not changed "significantly" since its projection in October, governor Tiff Macklem told media during a press conference in Ottawa on Wednesday.

"However, uncertainty around our forecast is heightened, and the range of possible outcomes is wider than usual," he said during his prepared remarks. "U.S. Trade policy remains unpredictable, and geopolitical risks are elevated."

The upcoming review of the Canada-U.S.-Mexico Agreement on trade, or CUSMA, is a key source of economic uncertainty and an "important risk" to Canada's economic outlook, he added.

The governor said it's clear that open, rules-based trade with the U.S. Is "over."

Asked by the Wall Street Journal whether the outcome of that negotiation will dictate future interest rate decisions, Macklem acknowledged that "it is an important risk to our projection."

The central bank's current economic projections are based on a scenario in which U.S. Tariffs against Canada remain in place and CUSMA-related exemptions maintain some free trade with the U.S. "That could change with the review," he said.

As the Canadian economy continues to adjust to U.S. Protectionism, and as population growth slows, the central bank expects modest GDP gains and an inflation rate close to its two per cent target.

GDP growth likely stalled in the fourth quarter as U.S. Tariffs batter Canadian exports. But domestic spending "appears to be picking up," according to the central bank's release.

Employment has risen but unemployment is elevated and few businesses plan to hire in coming months. The central bank is projecting annual average GDP growth of 1.1 per cent in 2026 and 1.5 per cent in 2027, "broadly in line" with the October projection.

The current rate "remains appropriate" in keeping inflation close to target, Macklem said. If the outlook changes, "we will be prepared to respond," he added, echoing remarks he's made over the last several meetings.

Also contributing to the "sense of uncertainty" is the threat of independence to the U.S. Federal Reserve, said Macklem.

The governor recently signed a letter in support of U.S. Fed chair Jerome Powell, who is under investigation by the country's Department of Justice after defying pressure by U.S. President Donald Trump to cut interest rates.

The U.S. Fed is the "biggest, most important central bank in the world, and we all need it to work well. A loss of independence for the Fed would affect us all," Macklem said, and would hit Canada particularly hard given the integration of Canadian and U.S. Markets.

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