Monday Market Minute | Jan 26, 2026

BoC holds at 2.25% — confirms easing cycle is over, warns monetary policy can't offset tariffs

What Moved

The Bank of Canada held its overnight rate at 2.25% on January 28, marking the third consecutive hold and formally confirming what markets had already priced in: the easing cycle that delivered 175 basis points of relief between June 2024 and October 2025 was complete. Governor Macklem's accompanying statement was unusually direct. GDP growth was projected at just 1.1% for 2026 — well below potential — while December CPI had printed at 2.4%, slightly above target due to base-year effects. The Bank acknowledged the tension explicitly: growth was too weak to tighten, but tariff-driven inflation risk meant further easing would be counterproductive. Macklem stated plainly that monetary policy could not offset the structural damage that broad-based tariffs would inflict on the Canadian economy — a message aimed squarely at Ottawa, signalling that fiscal and trade policy would need to carry the burden.

Why It Matters

The hold at 2.25% crystallized the operating environment for private markets in 2026. Private credit portfolios locked in attractive spreads during the easing cycle now operated from a stable base rate — floating-rate structures would generate consistent income without the noise of frequent rate adjustments. For PE, the end of the easing cycle removed the tailwind of declining discount rates, shifting valuation support toward operational improvement and revenue growth. The 1.1% growth projection was sobering but not surprising — it reflected a domestic economy navigating trade uncertainty rather than a recessionary trajectory. For allocators, the message was clear: returns in 2026 would come from asset selection and underwriting discipline, not from the rate cycle doing the heavy lifting.

Signal to Watch

The BoC's next decision on March 11 would hinge on whether tariff threats had materialized into implemented policy — if they had, expect Macklem to frame the response as a fiscal matter, not a monetary one.

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