Bank of Canada Interest Rates Set for Hold at 2.25%: Stronger Data Cements Pause

Most economists anticipate the central bank will maintain the benchmark rate at 2.25% after a string of positive economic reports.

The Bank of Canada (BoC) is scheduled to announce its next decision on interest rates on December 10, marking its last opportunity this year to adjust, cut, or hold the rates steady.

Following several mostly positive reports regarding the economy and the job market, the consensus among economists is that the central bank will hold its benchmark interest rate at 2.25 per cent, though the possibility of another cut remains slight.

“So far, all that we’ve seen on the economic data is that it’s coming in a bit stronger, if anything, than the Bank of Canada was projecting. So I think that definitely cements a hold at this meeting,” says Claire Fan, a senior economist at Royal Bank of Canada (RBC).

Consensus for a Rate Hold

Central bankers meet eight times per year to determine monetary policy and set the benchmark lending rates, which guide commercial lenders in setting their own rates.

Derek Holt, vice-president and head of Capital Markets Economics at Bank of Nova Scotia, stated: “No policy changes are expected at this meeting. No change is expected for the next several meetings at a minimum.” Holt added that the “key to success” for Governor Tiff Macklem is “to walk away from it all without rocking the boat.”

Mortgage expert Clay Jarvis of NerdWallet Canada also forecasts the BoC will keep rates unchanged this week. Jarvis noted that “If the Bank surprises us all with a third consecutive rate cut, though, the winter market could be unseasonably warm.”

The Bank of Canada has delivered four rate cuts this year, including at its last two meetings. Prior to those cuts in September and October, the central bank held its key policy rate at 2.75% for three straight meetings, largely due to uncertainty stemming from the trade war and U.S. tariffs.

Economic Data Supports a Pause

The Bank of Canada’s mandate is to keep inflation within an optimal range of one to three per cent, using interest rate adjustments to steer the economy. To make these decisions, the BoC reviews key economic gauges, including GDP, inflation reports (like the CPI), and the Labour Force Survey (unemployment rate).

“Some of the key economic indicators that we’ve gotten since the last Bank of Canada meeting included a pretty big upside in terms of the third quarter GDP numbers and a big drop in the unemployment rate,” Fan pointed out.

• GDP Avoided Recession: Despite the trade war shocks, Canada avoided a recession (defined as two consecutive quarters of GDP contraction) after GDP showed a surprising jump in the third quarter following a decline in the second quarter.

• Inflation Tracking Target: Consumer inflation has trended lower, with the October report measuring price growth at 2.2%, down from 2.4% in September.

• Job Market Resilience: Canada’s unemployment rate fell for the second straight month in November to 6.5%, down from a high of 7.1% in August.

These positive signs led the Bank of Canada to suggest at its last meeting that rates are “at about the right level.”

Fan confirms: “Our current base case is for the overnight rate to be holding at 2.25 per cent. A lot of that does has to do with the fact that the economy is expected to grow into 2026, but the growth rate isn’t exactly strong by any means.”

2026 Outlook: Fiscal Policy Poses Upside Risk

Governor Macklem previously indicated that if economic activity aligns with the October projection, the current policy rate is “about the right level” to maintain inflation stability while aiding economic adjustment.

However, risks remain. Fan suggests that former Prime Minister Mark Carney’s fiscal policies—including plans to spend billions on growth projects—are a main “upside” risk for Canada’s economy.

“We definitely see risk, more risk essentially of you know, interest rate increases in 2026, if not more than more cuts, essentially. But our base case currently is still for the Bank of Canada to hold steady pretty much throughout next year,” Fan concluded. If the economy grows much faster than expected, the BoC might even need to raise rates to cool inflationary pressures.