OTTAWA — The Bank of Canada today held its key interest rate at 4.5%, as forecasters anticipated, but signaled that stubborn inflation and cooling labour markets could push the first rate cut into the second half of the year. Governor Tiff Macklem told reporters that “the economy is evolving largely as we projected, but we remain cautious about underlying price pressures.”
New data from Statistics Canada shows the economy added a modest 12,000 jobs in January, far below the six‑month average of 28,000. The unemployment rate held at 5.9% as more Canadians entered the workforce. Meanwhile, annual CPI inflation ticked up to 3.4% in January, driven by shelter costs and higher gasoline prices.
Housing remains the main anchor
“Shelter inflation is still running above 6%,” said Avery Chen, economist at BMO. “Until we see rent and mortgage interest costs moderate, the Bank will be hesitant to ease.” Macklem echoed that message, noting that policy is still restrictive and that governing council needs “more downward momentum in core inflation.”
Consumer resilience, a bright spot through 2025, appears to be fraying. Delinquency rates on auto loans and credit cards have risen to their highest levels since 2020, according to the Office of the Superintendent of Bankruptcy. However, household balance sheets remain supported by wage gains that are now outpacing inflation for the first time in two years.
Global and US uncertainty
Canada’s export‑heavy economy also faces external risks. The US presidential election cycle has injected uncertainty into trade policy, and while the US economy remains robust, a sharper slowdown there would hit Canadian manufacturing. “We’re watching US consumer demand closely,” said Macklem. “It matters for our outlook.”
Markets now assign a 70% probability to a first rate cut in July, with another move before year‑end. The Canadian dollar hovered around 73.5 cents US after the announcement.