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CA: BoC Monetary Policy Report
Highlights
In its January Monetary Policy Report, the Bank of Canada expects slowing population growth and U.S. trade policy uncertainty to translate into a modest Canadian growth in the near term, with consumer spending holding up, business investment slightly improving and fiscal policy providing some support.
Inflation, which was 2.4 percent in December. After a volatile beginning of the year that will see inflation at 2.4 percent in January, 1.8 percent in February and 1.7 percent in March, it will settle around 2 percent from April. The slowdown in February and March is related to lower energy prices, slower shelter price increases and the end of the GST/HST holiday implemented between Dec. 14, 2024 and Feb. 15, 2025.
The central bank projects GDP growth to stall in the fourth quarter of 2025 on soft exports while domestic demand picks up. Activity is projected to rebound 1.8 percent in the first quarter of 2026 with support from final domestic demand. GDP growth is anticipated to slow to 1.5 percent in the second quarter and 1.0 percent in the third quarter. Net exports and inventories will weigh on growth. After a large inventory buildup in early 2025, accumulation will slow and drag on economic growth this year.
While slowing population growth will weigh on consumption, per-capita consumption is expected to be strong in early 2026, supported by past interest rate cuts and higher equity prices. Consumption growth per capita will eventually slow down to reach 0.5 percent in the fourth quarter 2026 from 1.7 percent in the first quarter.
Overall, in line with October's projections, Canada's GDP is expected to expand by 1.1 percent this year and 1.5 percent in 2027, down from 1.7 percent in 2025.
The upcoming review of the Canada-U.S.-Mexico-Agreement (CUSMA) will remain a key source of uncertainty for Canada's growth outlook.
Definition
Since 2009 the Bank of Canada (BoC) has regularly updated its economic view via a quarterly Monetary Policy Report. This presents base-case projections for inflation and growth in the Canadian economy as well as an assessment of the risks. The forecast provides a platform upon which the monetary authority can base its decisions with regards to any changes in official interest rates (and/or unconventional monetary instruments).
Description
Each quarter, the MPR gives the financial markets a view of the BoC's governing council thinking. This provides important guidance especially since the BoC does not publish minutes from its policy setting meetings. The report is released at the same time as the policy announcement is made.