The Bank of Canada is expected to keep the policy rate steady at 2.25% while maintaining the neutral stance amid trade uncertainty and risks to the economic outlook.
Since the last meeting in December, Canada’s economic data has softened a bit. The December Trimmed-Mean CPI Y/Y eased to 2.7% from 2.9% in November, and the unemployment rate jumped back to 6.8% in December vs 6.5% in November. The BoC did caution about underlying weakness in the previous strong GDP and employment reports and it looks like they were right.
BoC December Statement
The recent data caused a repricing in interest rate expectations as traders pared back their rate hike bets. The market overreacted to the November jobs report and at some point we had 35 bps of tightening priced in for 2026. That is now down to just 8 bps.
The central bank will also release the latest MPR (Monetary Policy Report) at this meeting where traders will be focused on potential changes to the neutral rate estimate (current 2.25%-3.25%). In case the lower bound of the range gets revised lower, it could be taken as a signal of a dovish stance and weigh on the Canadian Dollar.
At the press conference, Governor Macklem should reiterate the central bank’s patient stance amid trade uncertainty and the risks to the economic outlook. Overall, it’s likely to be an uneventful decision as the BoC awaits more economic data and further developments on the trade side.
