Canadians can expect the first Bank of Canada (BoC) interest rate update of the year next Wednesday.
Canada’s central bank held the key interest rate at 2.25 per cent in December.
The Bank of Canada attributed the rate hold to slowing inflation in October (2.2 per cent), as gas prices dropped and food prices increased at a slower pace.
“If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2 per cent while helping the economy through this period of structural adjustment,” stated the BoC.
It did note that “uncertainty remains elevated” and that if the forecast changes, the central bank is “prepared to respond.”
Ratehub.ca mortgage expert Penelope Graham shared her predictions in anticipation of the next interest rate announcement scheduled for Jan. 28.
Will the Bank of Canada introduce more rate cuts or hikes?
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Graham said the BoC established in October that it would hold rates for an extended period, a statement it doubled down on in the December rate announcement.
She explained that the December inflation data — a 2.4 per cent gain, up from 2.2 per cent in November — strengthens this stance.
“However, that same report is more dovish than it appears on the surface, as the Bank’s preferred core measures of inflation actually improved; this indicates that while price growth may be stubborn in the short term due to year-over-year baseline effects, underlying inflation is showing signs of cooling,” noted Graham.
If this trend continues alongside more signs of a weakening economy, the mortgage expert said the bank could be in a position to cut rates later this year.
How could mortgage rates and housing be affected?
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Despite real estate sales improving on a monthly basis in the second half of 2025, Graham said that last year was a “dismal time” for Canada’s housing market. Both Toronto and Vancouver recorded two-decade lows in activity.
“This was mainly due to a lack of buyer confidence in the face of economic uncertainty – a factor still very much present in today’s market,” she explained. “The Bank’s latest fourth quarter Consumer Outlook Survey revealed consumers are still feeling heightened anxiety around tariffs, which is impacting spending and investment.”
However, Graham said mortgage holders can reap the rewards of the central bank’s cuts between 2024 and 2025, which resulted in five-year variable mortgage rates now as low as 3.45 per cent.
“Pricing not seen since the summer of 2022,” she noted.
Fixed mortgage rates are also priced below the four per cent mark, with today’s best insured five-year option at 3.84 per cent.
“Anyone shopping for a mortgage rate should ensure they’re comparing their options, especially if they’re renewing their term from one of the historically low rates available during the pandemic; shaving even a few basis points off your rate can equal thousands of dollars saved over the course of your mortgage term,” said Graham.
Learn more about what mortgage borrowers in Canada can expect in 2026.