Bank of Canada expected to maintain interest rates in January, with split views for 2026

The Bank of Canada is anticipated to maintain its current interest rates at the beginning of the year, but analysts are divided on the central bank’s future decisions. Some experts believe that recent economic data, including a robust labor market, economic growth, cooling inflation, and upcoming trade negotiations with the US, indicate that a rate cut in January is unlikely. Tiffany Wilding, economist at PIMCO, expects the bank to keep rates steady, noting that the current monetary policy stance aligns well with economic conditions and risk balance.

Following the Bank’s decision to hold rates in December, market expectations have shifted from no policy changes in 2026 to a potential rate hike later in the year. Tiago Figueiredo, a macro strategist at Desjardins Capital Markets, asserts that while there is only a small probability of a rate cut this month, there is a significant chance of an increase by the end of the year. However, Figueiredo believes that a rate hike is more likely in 2027, rather than in 2026. The Bank of Canada implemented four rate cuts in 2025, totaling 100 basis points and bringing the policy rate to 2.25%.

Analysts will closely monitor the rhetoric and communication from policymakers in the Monetary Policy Report regarding the possibility of a rate hike in the latter part of the year. The outcome of Canada’s trade negotiations with the US in July could influence the central bank’s decision-making process. Jack Manley, global market strategist at JP Morgan Asset Management, anticipates no change in rates or significant guidance alterations at the upcoming meeting. Crista Caughlin, director and portfolio manager at Mawer Investment Management, expects the Bank to maintain a neutral or dovish tone, reflecting a focus on stimulating economic growth.

While opinions on future rate movements vary, the potential impact of trade policy issues with the US, as well as the renewal of the CUSMA agreement, will play a crucial role in shaping the Bank of Canada’s decisions. PIMCO’s Wilding suggests that a resolution of trade tensions could lead to economic recovery and necessitate fine-tuning rate hikes to bring rates back to a neutral range. Conversely, a disorderly trade scenario might prompt further rate cuts. Despite controlled inflation, some analysts, like Veronica Clark of Citi, predict two rate cuts in 2026 due to below-target inflation and weak demand indicators.

Ultimately, the Bank of Canada’s decision regarding future rate changes will be influenced by a combination of economic indicators, trade negotiations, and global geopolitical factors. While some experts believe that a rate hike is on the horizon, others are more cautious, emphasizing the need for continued assessment of economic conditions before making any policy adjustments. The uncertainty surrounding trade relations with the US and potential economic repercussions underscore the complexity of the central bank’s decision-making process.