Central bank expected to remain on the sidelines for now
The Bank of Canada entered 2026 in no rush to cut again, with markets widely expecting the overnight rate to stay unchanged at Wednesday’s decision as policymakers weigh moderate growth and stabilizing inflation against still‑elevated core price pressures.
At the December meeting, governor Tiff Macklem reiterated a holding bias conditional on that backdrop, and the economic data since “largely aligned with those expectations,” according to a new outlook authored by RBC Economics.
December labour market conditions improved modestly from the prior quarter, while “core inflation decelerated in December, [but] it remains above the 2% target.”
“The focus will be on the Monetary Policy Report and a new set of central projections,” the RBC report said.
“We don’t anticipate material revisions, and expect forecasts will continue to align well with our cautiously optimistic view for a gradual recovery in 2026.”
give Canada’s labour market room to expand, keeping rate hikes off the table until mid‑2027 and providing mortgage professionals more runway.https://t.co/6r4UTzvnuE
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 20, 2026
The Bank’s latest Business Outlook Survey “showed a turnaround in business sentiment in late 2025, but a demand outlook still soft enough to constrain firms’ pricing ability,” it added.
In terms of Canadian GDP, RBC Economics projected “a partial rebound of 0.1% growth … after October’s 0.3% contraction,” with manufacturing under pressure amid a global chip shortage that “led to a plunge in auto manufacturing in November” and an overall 2.3% decline in manufacturing sales volumes.
On the services side, “education services likely bounced back in November following the end of the Alberta teachers’ strike,” the report said, while a prior 32% drop in postal services from October’s disruptions “won’t likely be repeated.”
Retail sales volumes were seen rising 1.1% in November, another tentative sign that growth was soft rather than stalling.
South of the border, the US Federal Reserve is also expected to hold its policy rate this week after three consecutive cuts aimed at a cooling but still‑resilient economy.
“GDP growth in the U.S. has been more resilient than expected,” the RBC report said, with a “tick lower in the unemployment rate in December” supporting the view that labour markets are cooling, not collapsing, even as inflation stayed above the Fed’s 2% objective.
“Absent a sudden and substantial rise in the unemployment rate, we expect both the BoC and the Fed will remain on hold for the rest of this year,” RBC Economics said, pointing to elevated core inflation in both economies as the key constraint on further easing.
For mortgage professionals, hopes of a fresh cutting cycle are fading fast as business and market surveys priced in a prolonged plateau for the 2.25% policy rate, and December’s rate hold steadied the housing outlook but offered little immediate relief for stretched borrowers.
In that context, next week’s BoC projections and Business Outlook Survey signals matter less for whether cuts are coming soon and more for how long mortgage clients would need to navigate a world of steady, not falling, rates.
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