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Economic growth in Canada is projected to rise to around 1.8% in 2025 and 2026, outpacing potential output, and excess supply is gradually absorbed. Inflation is expected to remain close to the Bank of Canada’s 2% target.

Inflation remains close to 2%, and past cuts in interest rates are boosting economic growth in Canada. At the same time, the threat of wide-ranging tariffs by the new US administration has increased uncertainty.

Governor Tiff Macklem discusses the Monetary Policy Report and the key issues involved in the Governing Council’s deliberations about the monetary policy decision.

On Wednesday, January 29, 2025, the Bank of Canada will announce its decision on the target for the overnight rate. A press release will provide a brief explanation of the decision. The Bank will also publish its quarterly Monetary Policy Report (MPR) at the same time as the rate decision.

The Canadian dollar has declined against the US dollar since October 2024, mostly due to rising uncertainty around trade policies. A widening differential in policy interest rates between the two countries has also played a modest role.

Economic growth has ticked up in Canada, boosted by past cuts in interest rates. In the absence of new tariffs, growth is forecast to strengthen, and inflation remains close to 2%. But the threat of new tariffs is causing major uncertainty.

The new US administration is considering sweeping tariffs on imports. While many important elements are unknown, these measures could be highly disruptive to the Canadian and US economies.

The prospect of wide-ranging US import tariffs is the most important risk to the outlook. Given the fast-evolving situation and the high degree of uncertainty, the Bank has chosen not to include new tariffs in the projection.

09:45 (ET)
On eight scheduled dates each year, the Bank of Canada announces the setting for the overnight rate target in a press release explaining the factors behind the decision. Four times a year, Governing Council presents the Monetary Policy Report: the Bank’s base-case projection for inflation and growth in the Canadian economy, and its assessment of risks.

Results from the Business Outlook Survey and the Business Leaders’ Pulse show that overall business conditions remain subdued, but firms are beginning to anticipate improvements in activity. Sales outlooks continue to show signs of improvement after a period of weakness. Yet many businesses still have spare capacity, which is reducing their need to expand. Firms expect cost growth, including wages, to soften further. Expectations for inflation moved slightly higher but remain within the Bank of Canada’s target range.