Canada Monetary Policy Research Brief

Monetary authority pauses as inflation eases and growth softens. The Bank of Canada held the overnight rate at 2.25 per cent in January, marking a second consecutive pause as inflation continues to cool and the economy works through the drag from U.S. trade restrictions. Fourth-quarter GDP likely slowed following a stronger-than-expected third quarter, reflecting weaker exports and a slower population backdrop, even as domestic demand showed early signs of stabilizing. Labour markets remain soft but steady, with the unemployment rate at 6.8 per cent and hiring intentions subdued across most sectors. Core inflation has also eased into the mid-2.0 per cent range. Against this backdrop, the current pause stance appears appropriate while trade uncertainties and geopolitical risks continue to shape the outlook.