By Promit Mukherjee
OTTAWA, Jan 28 (Reuters) - The Bank of Canada is widely expected to leave its key interest rate unchanged on Wednesday after data in recent weeks showed the country's economy has largely been stable and in line with the central bank's outlook despite the impact of U.S. tariffs.
BoC Governor Tiff Macklem, after announcing a 25 basis-point cut in late October, said borrowing costs were at about the right level and the central bank would keep its benchmark rate on hold if the economic
outlook did not change much.
The BoC last month left its policy rate at 2.25%, the lower end of the neutral range, at which the economy is neither stimulated nor restricted.
"They will be content to see where things are headed before moving again," said Pedro Antunes, chief economist at the Conference Board of Canada, an independent think tank.
Antunes added that the central bank will remain in its stated position on the sidelines and only resume reducing rates in the event of bad economic news.
The negative impact of U.S. tariffs on Canadian imports has so far been largely limited to the steel, lumber and auto sectors, as a North American trade deal remains in place.
A Reuters poll of economists showed on Friday that nearly 75% of the 35 economists polled forecast the central bank will keep rates steady through 2026, a larger majority than the just over 60% who expected that outcome in December.
Money markets are pricing Canada's monetary policy to remain on hold or tilt slightly toward easing through mid-2026, before turning to modest tightening in the final quarter of the year. 0#CADIRPR
The BoC will announce its monetary policy decision at 9:45 a.m. EST (1445 GMT). It will also release its quarterly Monetary Policy Report, in which it will resume its previous practice of sharing single-point forecasts for the economy and inflation.
That report is expected to have an updated outlook on the economic impact of the federal budget announced by Prime Minister Mark Carney's government in November. It also will include the BoC's latest take on underlying inflation and updated forecasts for the economy and job market.
"We anticipate that central bankers will sound less concerned about upside inflation risks and more concerned about downside growth risks," Royce Mendes, managing director and head of macro strategy at Desjardins Group, wrote in a note, adding that this scenario could increase market bets on a rate cut this year.
(Reporting by Promit Mukherjee; Editing by Paul Simao)
