The Bank of Canada has left interest rates unchanged in its last decision of the year, holding the policy rate steady amid lingering uncertainty over inflation and the economic outlook.
The central bank said on Wednesday morning it was keeping the benchmark rate – which leads variable rates and home equity lines of credit (HELOCs) in Canada – at its current level of 2.25%, hitting pause on cuts in a decision that had been widely anticipated by financial markets.
It said it views the current policy rate as "at about the right level" to keep inflation concerns in check and manage the economy through its current challenges, suggesting that interest rate cuts in early 2026 could be off the table.
The announcement means the Bank rounds off 2025 with its policy rate a full percentage point lower than where it sat at the end of last year, following four 25-basis-point cuts.
No surprise for markets as BoC opts for a hold
After its last decision – a quarter-point cut on October 29 – the central bank’s governor Tiff Macklem hinted that a rate hold was its likely next step.
And a surprisingly strong jobs report for November appeared to rubber-stamp that decision, with the economy adding about 54,000 jobs last month as unemployment slipped to 6.5%.
Those numbers outstripped economists’ expectations, even though part-time work contributed to most of November’s labour market gains, and Royal Bank of Canada (RBC) assistant chief economist Nathan Janzen said in the wake of that announcement a BoC hold was now even more likely than before.
Even with the Federal Reserve poised to cut later today in the US, Bank of Montreal (BMO) chief economist Doug Porter signalled last week that the Canadian central bank was unlikely to bring rates lower.
“After leading the world on the way down in 2024, and following up with 100 bps of cuts this year, it increasingly appears that the Bank of Canada is now done,” Porter wrote.
“While the BoC leaned that way after its prior decision in October, the run of data since then has been so firmly planted on the strong side that market chatter is now that the next move could be a hike (albeit well down the road).”
Resilient economy strengthened case for BoC pause
Analysts have also highlighted a Canadian economy that appears to be strengthening after absorbing the initial shock of US president Donald Trump’s tariff regime, launched earlier this year.
In the third quarter, Canada’s gross domestic product (GDP) posted a surprising jump, rising by 2.6% and defying predictions from earlier in the year that the economy would buckle under the weight of those Trump tariffs.
The Bank’s first decision of 2026 will arrive on January 28, followed by seven subsequent rate announcements: on March 18, April 29, June 10, July 15, September 2, October 28, and December 9.
CMP
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