The Bank of Canada left the benchmark interest rate unchanged at 2.25 per cent, while advising that “heightened” uncertainty has made it difficult to get a read on where the economy is headed. 

Policymakers’ best efforts at separating signal from noise resulted in an updated forecast that predicts subdued economic growth this year and next, as Canada’s traders adjust to life without easy access to the U.S. market. 

Steady, steady: When Bank of Canada governor Tiff Macklem dropped interest rates to their current setting last year, he was unusually explicit in stating that he intended to keep them there unless something truly unexpected happens. 

The governor expressed concern Wednesday that the latest batch of extraordinary headlines from around the world could further paralyze decision-making at the country’s businesses, impeding investment at a time when the economy desperately needs it. However, when his staff did the math, they turned up an outlook for growth and inflation that was little changed from their previous forecast in October. 

“We expect GDP to grow modestly,” Macklem said in a statement. 

Make it make sense: Macklem began his tenure as governor amid the COVID-19 pandemic. Last year, U.S. trade policy was so erratic that he stopped making standard economic forecasts until things settled down. The year began with a series of extraordinary events, but the governor has found his way through rougher weather than he’s facing now. 

The central bank doubts the third-quarter surge in economic growth will last. Its new outlook predicts momentum stalled in the fourth quarter, but will bounce back to an annual rate of 1.8 per cent this quarter. Some of the volatility relates to stockpiling, as companies now have an incentive to stuff their warehouses during moments of relative calm. That’s a change from a continental economy that was previously wired for just-in-time delivery. 

For all of 2026, the Bank of Canada sees growth of only 1.1 per cent, as uncertainty over the future of the North American trade agreement impedes business investment and exporters conduct the difficult work of seeking new markets. The forecast assumes U.S. tariffs stay at their current setting; the upcoming review of North American trade rules could change that. 

Also, sharp cuts in immigration numbers have shrunk population growth, which will impede household consumption.

“Uncertainty around this outlook is unusually high,” Macklem said. “Geopolitical risks are elevated and the upcoming review of the Canada-United States-Mexico Agreement is an important risk to the outlook.” 

It’s structural: Things could change at any moment, but there’s little in the Bank of Canada’s forecast and rhetoric that hints at a change in interest rates. Macklem’s job is to keep inflation at around two per cent and the central bank’s models predict an interest-rate setting of 2.25 per cent will achieve that. Monetary policy has become a source of stability. 

The downbeat is that growth is weak. Individuals are spending more per person because disposable income is rising, but the demand kick from unsustainably fast population growth is over. The U.S. tariffs that Canada faces are relatively low, but they nonetheless are high enough to raise prices and reduce trade. The volatility has put a chill on new orders and investment. The Bank of Canada said it observes that companies are diversifying away from the U.S., but those efforts will take time and add costs. 

“Monetary policy cannot compensate for the structural damage caused by tariffs, and it cannot target hard-hit sectors of the economy,” Macklem said. “It can play a supporting role, helping the economy through this period of structural change, while maintaining inflation close to the two per cent target.”