Big‑bank economists saw a long pause and a tilt toward cuts, not hikes
The Bank of Canada’s decision on January 28 to hold its overnight rate at 2.25% for a second straight meeting landed exactly where markets expected. However, economists said the central bank sent an equally clear message about staying put in an uncertain year for trade, growth and inflation.
The Bank judged that its outlook for growth and inflation has not changed significantly since October, and that the policy rate remains appropriate at the bottom of its neutral range.
With GDP stalling at the end of 2025, inflation momentum below 2% on several core measures and an output gap still estimated between ‑1.5% and ‑0.5%, the decision kept monetary policy in what CIBC economists Ali Jaffery and Avery Shenfeld called a “neutral zone trap” for a soft Canadian economy.
TD and RBC stress uncertainty, not urgency
“Not much of a surprise here from the BoC as the data stream has essentially fallen in line with the Bank’s expectations,” Andrew Hencic, director and senior economist at TD Economics, said.
“Inflation has continued to moderate (absent base‑effects from the GST/HST holiday), and economic growth is generally in line with expectations, leaving the Bank to stay the course.”
Hencic said the statement’s emphasis on risk stood out. The Bank’s Governing Council concluded that “elevated uncertainty makes it difficult to predict the timing or direction of the next change in the policy rate,” he said, pointing to the CUSMA review and geopolitical tensions as key swing factors.
Under TD’s base case, “we expect the BoC to stay on the sidelines in the coming months.”
Claire Fan, senior economist at RBC, said “the case for further easing is weak, yet persistent trade uncertainty and gradually moderating inflation are also arguing against a near‑term pivot to rate hikes.”
“As a base case, we expect the BoC will maintain the overnight rate steady through the end of 2026,” Fan said.
Governor Tiff Macklem confirmed the policy rate will remain at 2.25%, extending the pause as the central bank weighs inflation pressures and trade uncertainty with the US.https://t.co/wy8HEMUlZj#BankOfCanada #interestrates #mortgage #housingmarket
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 28, 2026
CIBC and BMO see slack and a tilt toward cuts
In their latest Economic Flash, CIBC’s Jaffery and Shenfeld said the Bank “remains firmly neutral on where things go from here,” but they argued the risks are skewed toward weaker growth rather than resurgent inflation.
“We will stick to our forecast of no interest rate moves by the Bank of Canada in 2026, but we see the odds of a further cut as more likely than a hike, given the potential minefield of trade negotiations ahead, and a starting point that still shows significant economic slack,” they said.
They warned that keeping policy locked in neutral as the economy adjusted to higher trade costs risks “forcing Canada’s economy into a neutral zone trap,” with monetary policy playing too limited a role in supporting capital reallocation and labour mobility into less trade‑exposed sectors.
Douglas Porter, chief economist at BMO, struck a similar note. “There is really nothing here to shift the call that the Bank will be on hold for the rest of 2026, although we continue to assert that if there is a move, it’s much more likely to be a rate cut rather than a hike this year,” he said.
On inflation, Porter said the Bank’s tone “is a tad dovish,” noting that it was now talking about inflation being “close to the 2% target” and expected to stay there in 2026.
The Bank’s point estimate for CPI this year at 2.0% sat “a full half‑point below our call,” he added.
What a prolonged hold meant for the mortgage market
For mortgage professionals, the latest “clear hold” reinforces a narrative that has been building since late 2025: policy rates likely peaked for this cycle, but borrowers should not expect another rapid easing phase.
C.D. Howe Institute’s Monetary Policy Council already recommended holding 2.25% until at least January 2027, reflecting confidence that inflation would converge to target without further moves.
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