- Decision
- Lower
- Rate change
- 25 bps
- overnight rate target
- 3%
The Bank of Canada cut its target for the overnight rate by 25 bp to 3.0 % (Bank Rate 3.25 %, deposit rate 2.95 %) and declared an end to quantitative tightening, arguing that CPI inflation is “around” the 2 % target while the economy continues to operate in excess supply and the labour market remains soft. To anchor the operating band it will, from 30 January, keep the deposit rate 5 bp below the policy rate, bring overnight reverse-repo terms in line with repo operations, and from early March restart asset purchases—beginning with bi-weekly term repos of CAD2–5 bn followed by Treasury-bill buying—to allow the balance sheet to stabilise and then rise modestly with economic growth. Domestic data show CPI volatility from tax changes but underlying inflation close to 2 %, shelter price pressures ebbing, unemployment at 6.7 % in December, and GDP expected to pick up from 1.3 % in 2024 to 1.8 % in both 2025 and 2026 as consumption and housing strengthen despite weak business investment. Externally, the Canadian dollar has fallen sharply against the USD amid trade uncertainty, while oil is roughly USD5 above October assumptions. The Bank sees global growth near 3 % over the next two years, with firmer US demand, subdued euro-area activity and policy support in China, but warns that any broad US tariffs would weaken Canadian output and lift prices; it will monitor developments closely to safeguard price stability.
Rate evolution
From June 2025 to September 2026, the Bank of Canada lowered its target for the overnight rate by 50 basis points to 2.25%, after holding at 2.75% through July 2025, cutting in September and October 2025, and then pausing through September 2026. The initial holds reflected high uncertainty over US tariffs and trade negotiations, while the cuts followed weakening exports and business investment, increased labour market slack and fading core inflation momentum, before the Bank said the overnight rate was about right if inflation stayed near 2% and activity evolved broadly as projected.
It held at 2.25% on June 10 and July 15, 2026, as uncertainty about US trade policy persisted and the conflict in the Middle East kept oil prices elevated, while the economy remained in excess supply even as growth picked up and broadened. On June 10, the Bank looked through a rise in headline inflation to 2.8% in April because core inflation had moved down to around 2% and there was limited evidence of broad-based pass-through, while warning it would not let higher energy prices become persistent inflation. By July 15, it judged the policy rate appropriate to sustain the recovery and return inflation to 2%, noting that second-quarter growth was estimated at 2.5%, consumer spending remained solid and export growth had resumed, while labour market conditions stayed soft and core inflation remained close to 2%. On September 2, the Bank again held the rate as the economy and inflation evolved broadly as forecast, noting that second-quarter gross domestic product rose 3.3% and the recovery broadened but excess supply persisted, while consumer price index inflation hovered around 3% mainly because of gasoline prices and core measures remained close to 2% in July, even as prolonged high oil prices and new tariffs increased upside inflation risks and made growth prospects more uncertain.