Bank of Canada Rate Decision Explained: Jan 28, 2026

The Bank of Canada opened the year with its first policy decision: it held the overnight rate at 2.25%, the level in place since last October. This benchmark guides lenders’ prime rates and, in turn, affects variable-rate products such as variable-rate mortgages, home equity lines of credit (HELOCs), and many personal loans.

The decision to pause came as little surprise. Since October the Bank has repeatedly described its current policy rate as “appropriate” given prevailing conditions. In today’s announcement it reiterated that stance, pointing to a softening economy, stable inflation readings and a lacklustre labour market. If the economy follows the Bank’s outlook, rates are likely to remain unchanged for the foreseeable future.

That said, the Bank emphasized several risks that could alter the path of policy. Rising geopolitical tensions, ongoing trade uncertainty with the United States, and the prospect of renewed tariffs if CUSMA renegotiations fail are all potential downside shocks to growth. “US trade restrictions and uncertainty continue to disrupt growth in Canada. After a strong third quarter, GDP growth in the fourth quarter likely stalled,” the Bank wrote in its press release accompanying the announcement.

Bank policymakers also made clear they remain ready to act if conditions deteriorate, noting heightened uncertainty and saying they are monitoring risks closely. The Bank has room to respond, including potential rate cuts if the outlook worsens, and emphasized its commitment to preserving price stability through this period of global upheaval.

Stable inflation supports the Bank’s pause

Alongside a modest growth outlook—the Bank projects roughly 1.1% growth this year and 1.5% in 2027—cooling core inflation has given the BoC flexibility to keep rates steady. Inflation is central to monetary policy: the Bank uses its policy rate to aim for a 2% inflation target. When inflation runs above target, rates typically rise to cool demand; when inflation is below target, lower rates can support the economy.

December’s headline inflation reading rose to 2.4% year-over-year from 2.2% in November, which on the surface might look rate-hawkish. But the Bank prefers core measures of inflation, and those metrics suggest broad price growth is easing. If core inflation continues to cool, the Bank could move from holding to easing policy in the future rather than tightening further.

What the BoC hold means for mortgage borrowers

Variable-rate mortgage holders are the group most directly affected by the Bank’s decision. Variable rates are typically set at a spread above or below a lender’s prime rate, which tracks the Bank’s overnight rate. With the policy rate on hold, existing variable-rate borrowers should see no immediate change to their interest rate or monthly payment.

New borrowers, however, could feel different effects. Lenders sometimes adjust the spread to prime on new variable-rate offers to protect margins during prolonged rate pauses. That means the headline policy rate may stay the same while the effective rate offered to new customers narrows their potential savings. At the time of the announcement the lowest advertised five-year variable mortgage rate in Canada was about 3.35%—a level not seen since mid-2022.

Fixed-rate mortgage pricing has also been relatively stable. Lenders set fixed rates with reference to Government of Canada bond yields—especially the five-year yield—which has hovered around the 2.8% range since December. Global factors, including an elevated U.S. 10-year Treasury yield and investor shifts toward safe-haven assets like gold amid geopolitical uncertainty, have kept bond yields and fixed mortgage pricing elevated. As a result, the best five-year fixed rates remained fairly close to variable offers, with top five-year fixed deals around 3.84% at the time of the announcement.

What the rate hold means for savers

A BoC rate pause is not uniformly bad news. Savers and passive investors often benefit from higher interest rates. High-interest savings accounts (HISAs) and guaranteed investment certificates (GICs) tend to track lenders’ prime-related pricing, so a hold at current levels means no immediate cut in returns for these products. For many Canadians that translates to steady interest income and greater certainty on short-term savings yields.

In short: borrowers with variable-rate debt see no immediate payment relief, prospective borrowers should watch lender spreads, fixed-rate seekers face little downward pressure while bond yields remain elevated, and savers can enjoy stable returns for now.

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