Understanding the Bank of Canada’s January 28, 2026 rate of interest decision

That the rate of interest would remain unchanged just isn’t an enormous surprise to central bank watchers; The bank has clearly stated in every announcement since October that its current key rate of interest is “appropriate” to support the economic situation. Today they reiterated that message against a backdrop of a weakening economy, stable inflation and a lackluster job market. If the economy develops as expected, we are able to assume that rates of interest will remain unchanged in the interim.

But that is a major caveat: January’s rate announcement is fraught with risks to our economy, including rising geopolitical tensions and continued trade pressures south of the border.

“U.S. trade restrictions and uncertainty continue to weigh on growth in Canada. After a strong third quarter, GDP growth likely stalled in the fourth quarter.” the bank writes within the press release accompanying the tariff announcement.

Whether or not CUSMA is successfully renegotiated this 12 months between Canada, Mexico and the increasingly confrontational United States can be a key point for the bank – if that fails, a much wider range of Canadian goods would turn into subject to American import tariffs, causing latest upheaval for the economy.

The central bank has also made it clear that it is going to be ready with some rate of interest cuts should the economy need it.

“…uncertainty has increased and we are monitoring the risks closely,” the Governing Council members added. “As the outlook changes, we stand ready to respond. The Bank is committed to ensuring Canadians continue to have confidence in price stability during this time of global disruption.”

Stable inflation also supports the continuation of fixed rates of interest

In addition to a subdued growth forecast – the bank expects the economy to enhance by 1.1% this 12 months and 1.5% in 2027 – the stabilization of inflation has also given the central bank scope to chop rates of interest.

Inflation is a very important indicator of the bank’s rate of interest policy; Its mission is to maintain its growth inside the 2% goal using its benchmark rate of interest. When inflation exceeds this threshold, the bank responds by increasing its rate of interest, which in turn discourages consumer spending and investment and, in theory, results in a discount in prices. The opposite happens when inflation lags by 2%. This is an indicator of a struggling economy that needs stimulus to maintain spending going.

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The latest December inflation figures showed the general figure rising 2.4% year-on-year (from 2.2% in November). At first glance, you may think this may signal the necessity for a rate hike, but if you look deeper into the core metrics – the bank’s preferred metrics – overall price growth is cooling off. If this continues, the bank may give you the chance to really lower rates of interest later as an alternative of raising them, further supporting the present maintenance of rates of interest.

What the BoC rate of interest means for mortgage borrowers

Variable rate mortgage holders are most affected by the bank’s rate of interest decisions, as variable rate pricing relies on a plus or minus percentage to a lender’s base rate, which moves in step with the bank’s overnight rate of interest.

This fixed rate doesn’t mean any change for those with adjustable rate mortgages; Your rate of interest, monthly payment amount or payment service interest portion will change. However, those searching for a variable may intend to make the switch sooner relatively than later – as we are actually in a longer-term holding pattern, lenders may resolve to vary the spread of their rates of interest to Prime. This is a tactic that protects your margins but eats into your savings. If you have already got a variable rate, your spread is not going to change, but latest customers will probably be affected. Currently it’s The lowest five-year variable mortgage rate in Canada is 3.35%– a low not seen for the reason that summer of 2022.

Meanwhile, fixed rates of interest are stagnating. That’s since the five-year Canadian government bond yield, which lenders use when setting the worth floor for fixed-rate mortgages, hasn’t really modified since December and stays within the 2.8% range. That’s partly since the yield on the 10-year U.S. Treasury note – considered a world benchmark – has also risen in recent weeks. As U.S. trade, geopolitical and domestic narratives turn into increasingly unpredictable, investors are less inclined to park their money in American debt and are turning as an alternative to assets like gold.

Until this changes, borrowers can expect yields to stay high for longer – and stuck rates of interest to vary little. The excellent news? Today Best five-year fixed mortgage rate is priced quite variable at 3.84%. That’s not an enormous margin for somebody seeking to secure an excellent deal.

What the BoC rate means for Canadians’ savings

While a central bank rate of interest means fewer discounts for mortgage borrowers, it is not bad news for savers and passive investors. Both high-yield savings accounts (HISAs) and guaranteed certificates (GICs) are based on their lenders’ key rates of interest, meaning their returns fluctuate in accordance with the BoC’s movements.

An rate of interest lock implies that the interest earned on these accounts and investments doesn’t change – and that savers can have peace of mind.

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About Penelope Graham

Penelope Graham is Head of Content at Ratehub.ca. She has over a decade of experience in real estate, mortgages and private finance news. Her commentary is steadily featured on BNN Bloomberg, CBC, The Toronto Star, National Post and The Globe and Mail.