Making sense of the Bank of Canada interest rate decision on January 28, 2026

The first central bank announcement of the year is upon us—and the Bank of Canada kicked it off with a rate hold, keeping the benchmark cost of borrowing in Canada at 2.25%, where it has remained since last October. This rate is used by lenders when setting their prime rates and, by extension, floating-rate borrowing products such as variable-rate mortgages, HELOCs, and some types of personal loans.

That the rate would remain unchanged doesn’t come as a huge surprise to central bank watchers; the Bank has clearly stated in each announcement since October that its current policy rate is “appropriate” to support economic conditions. Today, they reiterated that message against a backdrop of a softening economy, stable inflation, and lacklustre labour market. Should the economy perform as expected, we can expect rates to stay put for the time being.

That’s a considerable caveat, though: the January rate announcement is rife with the risks posed to our economy, including growing geopolitical tensions and ongoing trade pressure from south of the border.

“US trade restrictions and uncertainty continue to disrupt growth in Canada. After a strong third quarter, GDP growth in the fourth quarter likely stalled,” writes the Bank in the press release accompanying the rate announcement. 

Whether or not CUSMA is successfully renegotiated this year between Canada, Mexico, and an increasingly confrontational United States is also a keen point of focus for the Bank—should that fall through, a much wider swath of Canadian goods would be subjected to American import tariffs, presenting fresh upheaval for the economy. 

The central bank has also made clear that should the economy need it, it’s awaiting on the sidelines with a few stockpiled rate cuts.

“… uncertainty is heightened and we are monitoring risks closely,” the Bank’s Governing Council members add. “If the outlook changes, we are prepared to respond. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”

Stable inflation also supports continued rate hold

In addition to a tepid growth forecast—the Bank calls for the economy to improve by 1.1% this year, and 1.5% in 2027—stabilizing inflation has also given the central bank room to take a beat on rates.

Inflation is a key indicator for the Bank’s rate policy; it is part of its mandate to use its trend-setting interest rate to keep its growth within a 2% target. When inflation surpasses this threshold, the Bank responds by increasing its rate, which in turn dissuades consumer spending and investment, theoretically cooling prices. The opposite happens when inflation lags 2%. This is an indicator of a struggling economy that needs stimulus to keep spending activity moving.

The most recent December inflation numbers revealed a year-over-year increase in the headline number at 2.4% (from 2.2% in November). On its head, you’d think this would signal the need to hike rates, but looking deeper at the core measures—which are the bank’s preferred metrics—overall price growth is broadly cooling. Should this continue, the Bank could be in a position to actually cut, rather than increase rates, down the line, and further support the current rate hold.

What the BoC’s rate hold means if you’re a mortgage borrower

Those most impacted by the Bank’s rate decisions are variable-rate mortgage holders, as variable rates are priced based on a plus or minus percentage to a lender’s prime rate, which moves in line with the Bank’s overnight lending rate.

This rate hold means zero movement for those with variable-rate mortgages; their interest rate, monthly payment size, or portion of payment servicing interest will change. However, those shopping for a variable may want to move sooner rather than later—now that we’re in a longer-term holding pattern, lenders may opt to change their rates’ spread to prime. This is a tactic that preserves their margins, but whittles your savings. If you’re already at a variable rate, your spread won’t change, but new clients will be impacted. Currently, the lowest five-year variable mortgage rate in Canada is 3.35%—a low not seen since the summer of 2022.

Fixed rates, meanwhile, are stagnant. This is because the five-year Government of Canada bond yield, which lenders use when setting the price floor for fixed-rate mortgages, hasn’t really budged since December, remaining in the 2.8% range. This is partially because the yield for the US 10-year Treasury—considered the global benchmark—has also been elevated in recent weeks. As the US trade, geopolitical, and domestic narratives become increasingly erratic, investors have been less inclined to park their cash in American debt, pivoting instead to assets such as gold. 

Until this shifts, borrowers can expect yields to stay higher for longer—and little movement among fixed rates. The good news? Today’s best five-year fixed mortgage rate is priced fairly closely to variable, at 3.84%. That’s not a wide spread for anyone looking to lock in at a decent deal.

What the BoC rate means to Canadians savings

While a central bank rate hold means fewer discounts for mortgage borrowers, it’s not bad news for savers and passive investors; both high-interest savings accounts (HISAs) and guaranteed income certificates (GICs) are based on their lenders’ prime rates, meaning their rate of return fluctuates alongside the BoC’s movements. 

A rate hold means no change to the interest earned by these accounts and investments—and peace of mind for savers.

Read more about mortgages:

• Renewing your mortgage? A guide for Canadians
• The best 5-year fixed mortgage rates in Canada
• Relocating? How to budget for a whole new life
• Mortgage payment calculator

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