MNI BoC Preview-Jan 2026: Holding Is The Plan…Until It Isn’t

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EXECUTIVE SUMMARY:

• The Bank of Canada is overwhelmingly expected by both markets and analysts to maintain its overnight rate at 2.25% at the January meeting (announcement on Jan 28).
• This would be a 2nd consecutive pause as part of what is anticipated to be a flat rate path through 2026. The biggest question is, in which direction will the next move be?
• The account of the deliberations at the December meeting highlighted that Governing Council debated "whether it was more likely that their next move would be to raise or lower the policy interest rate."
• It remains more likely than not that the next move will be a hike, with a downside shock required for cutting again.
• The January Monetary Policy Report is likely to show an upgrade to GDP growth projections for 2025 as a whole with a potential slight upgrade to 2026 at a still-soft level. CPI forecasts also look set to be raised slightly due to higher-than-expected headline readings in the latter months of the year, but as we explain, the more important underlying metrics have been subdued.