This is an account of the deliberations of the Bank of Canada’s Governing Council leading to the monetary policy decision on January 28, 2026.
This summary reflects discussions and deliberations by members of Governing Council in stage three of the Bank’s monetary policy decision-making process. This stage takes place after members have received all staff briefings and recommendations.
Governing Council’s policy decision-making meetings began on January 20, 2026. The Governor presided over these meetings. Members in attendance were Governor Tiff Macklem, Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, Rhys Mendes and Michelle Alexopoulos.
International economy
Governing Council began deliberations by discussing recent data and developments in the global economy. Members reflected on recent geopolitical turbulence and what it meant for the outlook for global growth. While most major economies had proven resilient in the face of US tariffs, the prospects for global growth were vulnerable to unpredictable US trade policy and heightened geopolitical tensions.
In the United States, strength in consumer spending as well as investment related to artificial intelligence (AI) contributed to stronger-than-expected economic growth. Members anticipated that consumption would remain robust due to wealth effects from strong equity markets and growth in real incomes from productivity gains. The US labour market had softened, with some weakness in hiring over recent months. Going forward, labour market conditions were expected to stabilize with solid growth in US gross domestic product (GDP). US inflation was being held up by the pass-through of higher tariffs to prices, but inflation was expected to ease gradually as the impact of tariffs on inflation fades. Nevertheless, members acknowledged that businesses might have been holding back on passing on the costs of tariffs to their customers. As inventories are drawn down and the cost of new imports rises, this could lead to more persistent upward pressure on prices.
In the euro area, a stronger services sector was contributing to economic activity, while declining activity in manufacturing was a drag on growth. Fiscal spending on defence and infrastructure was expected to contribute to economic growth over time.
In China, economic growth hit the government’s target of 5% in 2025. This was achieved through a reorientation of exports away from the United States to other markets and through significant stimulus supporting household consumption. Members questioned whether strength in these areas could continue to bolster the pace of growth, given that investment and housing were expected to remain weak.
Overall, Governing Council’s outlook for global economic growth in the January Monetary Policy Report was broadly in line with their projection in the October Report. AI-related investment was expected to contribute to growth in the United States and elsewhere. At the same time, AI exuberance also posed a risk to the outlook should sentiment about the expected returns on these investments deteriorate.
Global oil prices had trended lower since the October Report. More recently, geopolitical events had pushed oil prices up. In the January Report, oil prices are assumed to be slightly lower than in October, reflecting rising global production and accumulation of inventories in 2025. Financial conditions remained accommodative. Equity markets were buoyant, and credit spreads remained tight. Since the October Report, the Canadian dollar had been at roughly 72 cents US, but recent weakness in the US dollar had pushed the Canadian dollar higher.
Canadian economy and inflation outlook
Members then turned their attention to recent economic developments and the outlook for growth and inflation in Canada. Since the October Report, the economy had evolved largely as anticipated. The Canadian economy continued to be affected by trade restrictions and heightened uncertainty. GDP growth was volatile throughout 2025 as US tariffs led to large swings in net exports and inventories. After a strong third quarter, members expected fourth-quarter GDP growth to be near zero before picking up again.
Members discussed the path ahead for Canada’s exports. Restructuring of supply chains could help mitigate the impact of tariffs, while new trade deals and stronger US demand could provide additional support. But the pace at which businesses will adapt to the evolving global trade environment was uncertain.
Domestic demand was expected to continue to be resilient. Consumer spending had held up even as many Canadians were worried about their jobs and financial situation. Per person consumption growth was expected to continue to rise modestly over the projection horizon, with support from past interest rate cuts, higher equity prices and rising disposable income. Housing activity was also expected to recover gradually, but growth would likely be uneven. The Toronto and Vancouver area housing markets had been subdued partly because of ongoing affordability challenges, which could restrain recovery in these areas.
Members discussed the outlook for business investment, which was weak not only in trade-related industries but across sectors. Investment was likely to remain soft over most of 2026. As uncertainty related to US trade policy dissipates, investment should pick up. While investment in AI could spur gains in productivity, evidence of this remained limited, and any impact on growth or potential output would take time to emerge.
Members also discussed fiscal policy. They agreed that provincial infrastructure spending and the measures outlined in the federal budget would support investment and overall growth going forward. While government spending was expected to contribute to GDP in 2026, the full impact on growth of these initiatives would take time to materialize.
Members talked at length about developments in the labour market. The unemployment rate was still elevated, although it had declined modestly to 6.8% in December after a recent high of 7.1% in August and September. The youth unemployment rate remained high at 13.3% in December but had declined from a peak of 14.6% in September. The increase in employment in recent months was mostly in the services sector. Employment in trade-related sectors remained weak but had levelled off following a large decline in the first half of 2025. While the decline in these sectors had not yet spilled over to other sectors, surveys showed that few businesses had plans to hire more workers in the coming months. Looking at a broad set of indicators, members agreed that the labour market continued to be soft.
Overall, Governing Council members agreed that their outlook for growth was broadly similar to their projections in the October Report. GDP was expected to grow modestly, by 1.1% in 2026 and 1.5% in 2027, reflecting continued effects of trade disruptions, uncertainty and slower population growth. They agreed that the economy remained in a state of excess supply, which they expected would be gradually absorbed over the projection horizon.
With respect to recent inflation dynamics, members agreed that CPI inflation was evolving as expected. Recent data had pushed up the headline number to 2.4%, largely due to base-year effects from last year’s GST/HST holiday and higher inflation in food prices. CPI excluding indirect taxes had eased to 2.5% in December. The Bank’s preferred measures of core inflation had also eased from 3% in October to around 2½% in December. Three- and six-month measures of CPI-median and CPI-trim were now close to or below 2%, which members noted was a sign of continued easing in core inflation. In addition, input and unit labour costs had eased, and results of the Bank’s Business Outlook Survey for the past quarter showed little evidence of capacity constraints or labour shortages. For the year as a whole, inflation averaged 2.1% in 2025, and it had been within the 1% to 3% band for two years. Still, members acknowledged that food price inflation and rent inflation were areas of concern for Canadians struggling with the cost of living. Short-term consumer inflation expectations remained somewhat elevated, even as longer-term expectations had softened.
The costs of reconfiguring trade routes and supply chains could put some upward pressure on inflation but was expected to be offset by downward pressure from excess supply. This would keep inflation close to the 2% target over the projection.
Considerations for monetary policy
Governing Council members discussed what recent economic developments implied for the stance of monetary policy. They focused their discussion on key risks to their outlook for growth and inflation.
Members discussed three broad areas of risk: geopolitical turbulence, the review of the Canada-United States-Mexico Agreement (CUSMA) and risks related to the economy’s adjustment to trade disruptions.
Recent geopolitical events—including in Venezuela, Iran and Greenland—and threats to the independence of the Federal Reserve had made the world more turbulent and caused a resurgence in uncertainty. US trade policy, increasingly used for geopolitical aims rather than economic ones, had become more unpredictable. Escalating tensions could lead to disruptions in global supply chains and could weigh on economic activity, posing both upside and downside risks to inflation.
The review of CUSMA is an important risk to the outlook. Members acknowledged that businesses could remain hesitant to deploy capital until they have more certainty about Canada’s trading relationship with the United States. Members noted that there was a broad range of outcomes of the review and recognized that a broadening of US tariffs on Canada would weaken growth further. To a certain degree, the federal government’s efforts to reduce Canada’s dependence on trade with the United States could support export growth and investment over a longer horizon. Overall, members agreed that the CUSMA review posed a downside risk to economic growth. Inflation could be pulled down if the economy were to weaken, but higher import costs, potential counter-tariffs and supply chain disruptions could also push inflation higher.
Members also discussed risks to economic activity and inflation from ongoing trade disruptions and structural adjustments in the economy. The impact of tariffs had largely been concentrated in targeted sectors. While spillovers to other sectors remained limited, production and employment could still decline more sharply than expected, weakening the broader economy and putting downward pressure on inflation.
Members noted that while businesses in Canada were reconfiguring their supply chains and increasing overseas exports, structural adjustment to the new trade landscape would take time. The sectoral impacts on capital and labour could produce more pronounced supply side effects over time as structural reallocation advances. However, uncertainty around the timing, speed and extent of this structural adjustment made it challenging to assess the impact on growth and potential output and, therefore, the degree of excess supply in the economy. The inflation implications were also uncertain: growth rates of input and labour costs were down, but the costs of restructuring supply chains were difficult to quantify and could be higher than anticipated.
Governing Council concluded that the risks around the outlook had moved higher. Geopolitical tensions and US trade policy remained unpredictable, and uncertainty about how the Canadian economy would adjust remained elevated. Against this backdrop, members agreed that they would need to maintain optionality in setting monetary policy.
Policy decision
Considering recent developments and the risks to the outlook, Governing Council assessed the stance of monetary policy.
Members agreed that monetary policy should remain focused on keeping inflation close to the 2% target while helping the economy through this period of structural adjustment.
With the policy interest rate on the stimulative side of the Bank’s estimated range for the neutral rate, and with the updated projection broadly in line with the projection in the October Report, members judged that the current policy interest rate remained appropriate. Governing Council therefore decided to maintain the policy rate at 2.25%.
Members discussed the future path for monetary policy. They agreed that holding the policy interest rate at its current level was conditional on the economy evolving in line with their outlook. With uncertainty heightened, the range of possible outcomes that could materially change the outlook had broadened. Moreover, in the context of an unpredictable environment with little historical precedent, it was unusually difficult to effectively assign weights and probabilities to the various risks surrounding the outlook.
Members therefore agreed that it was difficult to predict the timing and direction of the next change in the policy rate. They would continue to monitor risks closely and were prepared to respond if the outlook changed.