Bank of Canada Holds Rates at 2.25%—What It Means for Inflation, Growth, & Canadian Markets

Canada’s economic outlook remains clouded by stubborn inflation, slowing growth, and ongoing uncertainty surrounding U.S. trade policy. Against this backdrop, the Bank of Canada once again chose to keep its key interest rate unchanged—a decision that carries important implications for the Canadian economy, financial markets, and active traders watching for signals on what comes next.

What’s Canada’s Interest Rate?

The Bank of Canada held its key lending rate, which directly impacts interest rates, at 2.25%. The central bank has held its policy rate at 2.25% since October. A year ago, Canada’s interest rate stood at three percent.

While financial markets expect the Bank of Canada to hold its interest rates at 2.25% for the remainder of 2026 before increasing them in 2027, Governor Tiff Macklem provided little guidance about where rates will head this year. This is primarily a result of uncertainty about U.S. tariffs and U.S. President Donald Trump’s protectionist “America First” dogma.

Macklem noted that holding interest rates at 2.25% “remains appropriate” given the central bank’s outlook for modest economic growth. Ongoing economic uncertainty makes it “difficult to predict the timing or direction of the next change in the policy rate,” he said.

The murky outlook didn’t provide any juice to the stock market. Though the Toronto Stock Exchange (TSX), Canada’s main stock index, continues to trade at record levels. The Canadian dollar, meanwhile, did inch up slightly to a 15-month high of $0.7388 (U.S.). This slight increase could be more of a result of a weaker U.S. dollar, which is trading at its lowest level in four years.

What Is the Outlook for the Canadian Economy?

The outlook for the Canadian economy remains muted. It hinges, in part, on what happens when the Canada-United States-Mexico Agreement (CUSMA) comes up for review later this year. President Trump has expressed a variety of sentiments—going from saying that the agreement was a terrible deal for the U.S. to indicating that “we don’t need Canada” and that he was fine letting the deal expire.

Trump’s trade war has already had a significantly negative impact on the Canadian economy, with gross domestic product (GDP) coming in lower than expected. For the fourth quarter of 2025, the Bank of Canada thinks GDP will be zero. Looking ahead, the Bank of Canada expects it to expand just 1.1% in 2026 and 1.5% in 2027.

On the inflation front, the central bank expects GDP to remain near the two-percent target in 2026 and 2027.

Should the CUSMA negotiations go poorly for Canada, the Bank of Canada could still cut interest rates further to support the Canadian economy.

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