Bank of Canada Holds Key Interest Rate at 2.25%

The Bank of Canada wrapped up 2025 by keeping its benchmark rate at 2.25 per cent. This was widely expected, since recent data on GDP, inflation, and the job market all pointed to a more balanced economy. Governor Tiff Macklem repeated that the current rate is “about the right level” to keep inflation close to target while allowing the economy to adjust heading into 2026.

Why the Bank Chose a Hold

Inflation has stayed near two per cent for more than a year, unemployment has been easing, and overall economic conditions have stabilized. With positives on one side and risks on the other, a hold was seen as the safest move.

A major risk still hanging over the outlook is the ongoing trade tension and tariff environment. Even though Canadian companies are not paying tariffs directly, they face higher supply chain costs through their U.S. counterparts. Economists warn that if these pressures intensify, inflation could pick up again.

Could Rates Go Up in 2026?

While many homeowners are hoping for more cuts, some economists believe the next move might actually be a hike in the second half of 2026. Institutions like RBC and Scotiabank say inflation risks are still tilted upward. If that happens, the Bank may need to tighten policy instead of easing it.

This decision also comes after four rate cuts earlier in the year. After an active 2025, the Bank now appears comfortable pausing to evaluate how the economy absorbs those moves.

Why Prices Still Feel High

Many Canadians wonder why life is not cheaper even though inflation is lower. The reason is that inflation measures the pace of price increases, not the price level itself. Prices rose sharply during and after the pandemic, and those higher price levels remain. According to the Bank, trying to push prices down would likely trigger a severe recession. The long-term solution is better productivity and stronger income growth, which help affordability naturally.

What This Means for Mortgage Clients

Variable-rate borrowers can expect their payments to stay the same for now. Fixed-rate shoppers may see little immediate movement, since fixed rates respond more to bond yields than to the Bank’s announcement. Anyone renewing in the next year or two should keep a close eye on 2026, since renewed inflation pressures could raise borrowing costs again.

Source: Global News

December 10, 2025