Markets expect the Bank of Canada to hold interest rates at current levels in the near-term as the economy continues to weaken.
The latest data from Statistics Canada showed that the economy contracted 0.5% in the final quarter of 2025 and registered tepid growth of 0.1% in January.
Canada’s economy is now tracking for first-quarter 2026 annualized growth of 1.4%. The economy remains weak as U.S. tariffs continue to impact business and consumer confidence.
As a result, economists and financial markets continue to believe that the Bank of Canada will keep interest rates at current levels when it holds its next policy meeting on April 29.
However, markets are tentatively pricing in interest rate cuts in this year’s second half as economic weakness persists and GDP expands below trend.
The central bank held its trendsetting overnight interest rate at 2.25% on March 18 and signaled that it is taking a wait-and-see approach to how the Iran war and higher oil prices impact Canada’s economy in the months ahead.
Much of the stagnant growth is due to a downturn in manufacturing. Canada’s manufacturing sector contracted 1.4% in January due to weaknesses in durable goods and softening demand in the U.S. market.
