The decision comes after GDP in Q3 was stronger than expected
After much speculation, the Bank of Canada has decided to hold its overnight rate steady for the last interest rate decision of 2025, holding at 2.25 per cent.
Ahead of Wednesday’s meeting, analysts and investors alike had anticipated the central bank to hold after several mostly positive recent reports on the economy and job market.
“Canada’s economy grew by a surprisingly strong 2.6 per cent in the third quarter, even as final domestic demand was flat,” read the official release. “The increase in GDP largely reflected volatility in trade. The Bank expects final domestic demand will grow in the fourth quarter, but with an anticipated decline in net exports, GDP will likely be weak. Growth is forecast to pick up in 2026, although uncertainty remains high and large swings in trade may continue to cause quarterly volatility."
The Bank also attributed the rate hold due to Canada’s labour market showing signs of improvement.
“Employment has shown solid gains in the past three months and the unemployment rate declined to 6.5 per cent in November. Nevertheless, job markets in trade-sensitive sectors remain weak and economy-wide hiring intentions continue to be subdued,” the release stated.
The BoC indicated in its last rate decision that it could lean towards holding rates because it was satisfied with how the economy was performing due to considerable uncertainty due to trade tensions with the US.
Before cutting rates in September and October, the central bank held its key policy rate at 2.75 per cent for three straight meetings amid the uncertainty surrounding the trade war and US tariffs.
According to Morningstar Canada, as of early December, traders were assigning negligible odds to a near-term move and even pricing a modest probability of a rate increase in 2026.
Complicating the outlook, the Bank refrained for much of the year from issuing a single central forecast, opting instead for scenario-based analyses tied to shifting US trade policy. Meanwhile, governor Tiff Macklem maintained that the economic impact of cross-border tariffs and Canada’s retaliatory measures remained too uncertain to anchor a definitive projection.
Since the easing cycle began last year, nine rate cuts have pulled the policy rate from 5.00 percent to the bottom of the estimated neutral range.
Looking ahead to 2026, markets and institutional investors alike now expect stability in the first few months of the new year as policymakers wait for clearer signals on growth, inflation, and the evolving trade environment.
“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,” read the release. "Uncertainty remains elevated. If the outlook changes, we are prepared to respond."
