As markets had overwhelmingly anticipated, the Bank of Canada left its policy settings on hold this morning, and again clearly signalled that rates are already at near-neutral levels, keeping expectations restrained for the year ahead and leaving currency markets broadly unmoved.

Policymakers led by Governor Tiff Macklem maintained the policy rate at 2.25 percent for a second consecutive meeting after delivering nine cuts between June 2024 and September 2025.

In the official statement setting out the decision, policymakers noted that the current policy rate “remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today. However, uncertainty is heightened and we are monitoring risks closely”.

“US trade restrictions and uncertainty continue to disrupt growth in Canada”, and soft exports are offsetting a modest increase in domestic demand to leave businesses unable to hire more workers. “Economic growth is projected to be modest in the near term as population growth slows and Canada adjusts to US protectionism,” but “A key source of uncertainty is the upcoming review of the Canada-US-Mexico Agreement”.

Updated projections in the Monetary Policy Report showed the Bank’s economists think growth will slow to 1.1 percent this year as uncertainty levels hamper business expansion, before recovering gradually in 2027—broadly unchanged from the October release. Inflation is seen slowing sharply in the coming months as energy and shelter prices come down while the effects of last year’s GST holiday are taken out, before rebounding toward 2 percent over the remainder of the year.

In remarks prepared ahead of the post-decision press conference, Governor Tiff Macklem said it’s “too early to tell how well the Canadian economy will adjust to current tariffs and ongoing uncertainty. The transition to the new trade environment could be smoother than we expect, with stronger business and household spending. Alternatively, the labour market could weaken further as trade impacts deepen, leading to lower household spending. Financial conditions could also tighten if volatility returns to markets”.

The Canadian dollar is trading slightly firmer as we go to print, pointing to a slight ratcheting up in expectations for a pivot toward a tightening bias in the back half of 2026.

Market positioning could change when Macklem and Deputy Governor Rogers answer questions in the next half hour, but for now, the balance of risks in the Canadian dollar is tilted to the upside as the US pursues its weak-dollar policy. We do not expect this to last indefinitely—downside shocks could intensify as this summer’s USMCA talks approach—but for now momentum remains firmly behind the broader US dollar decline.