Bank of Canada holds key interest rate at 2.25%, gives no timeline for increases

Today’s rate announcement confirms that “interest rates aren’t the barrier anymore” when it comes to home purchases, according to Joel Fox, COO of digital real estate platform Ownright.

“Prices have already come down from their peaks, but buyers remain cautious because they’re unsure about the long-term value of their purchase,” he said.

“People worry more about overpaying or losing equity than they do about an extra few dollars on monthly interest.”

Rates and lenders need to focus more on the non-financial side of homebuying, he adds. Buyers seek transparency, clear communication, realistic valuations, and guidance that helps them understand risks — not just costs.

“Rates may be stable, but confidence isn’t, and until the industry rebuilds it, we shouldn’t expect major movement in the market.”

Stronger-than-expected consumer demand and the rising cost of global trade could push inflation away from the Bank of Canada’s two-per-cent target, according to RBC economist Claire Fan.

The Bank of Canada’s assessment that the policy rate is “at the right level” relies on a key assumption that economic slack will offset cost pressures associated with the reconfiguration of trade, leaving inflation at about the two percent target, Fan says.

While Fan agrees with the BoC’s approach, she also warns that strong consumer demand growth could keep underlying price pressures higher next year.

Consumer purchases have “broadly held on to resilience this year and could remain a source of strength if not upside risks to our growth and inflation forecast in 2026, following improvements in labour market conditions,” she said. “That could lessen the disinflationary pressures relative to what was expected.”

The second risk stems from the rising cost of global trade reconfiguration. Canadian producers may not directly pay tariffs, but they still face cost increases for managing trade complications, seeking alternative sources or partners, and absorbing higher prices from U.S. counterparts through integrated supply chains.

“On both fronts, we see risks mostly tilted towards more inflationary pressures, not less,” she said.

“If either of those risks were to materialize more tangibly, risks of BoC rate hikes as early as [the second half of] 2026 rise.”

How long can the BoC keep rates on hold if economic data continue to surprise to the upside?

Nick Rees, head of macro research at Monex Canada, says this is a key question as investors digest Wednesday’s announcement from the central bank. He says the BoC’s statements read as if the Governing Council is “happy to look through recent upside data surprises for the time being.”

“Even as he demurred when asked to endorse the recent acceleration in rate-hike bets, the governor suggested evaluating the Governing Council’s likely actions by comparing data outturns to the Bank’s own projections. And, in short, the data have been better than expected,” Rees said in a statement.

“While that is a long way from indicating that a rate increase is imminent, we interpret that as skewing the balance of risks in favour of a rate hike if the data continue to outperform the Bank’s forecasts,” he added.

“All in all, then, dovish first impressions need to be weighed against some more hawkish details from the governor.”

Borrowers can expect relative stability in 2026 as rates aren’t expected to climb — nor drop, according to Natasha Macmillan, senior business director of everyday banking at Ratehub.ca.

“This creates an opportunity for Canadians struggling with debt,” she said, noting that delinquency rates have climbed this year as Canadians navigated a challenging financial landscape.

Personal loan rates and payments will remain the same, regardless of whether consumers own a variable or fixed rate.

For those considering debt consolidation, now may be the time to lock in a rate, given that costs aren’t expected to rise in the near term, Macmillan says.

Desjardins and CIBC economists Tiago Figueiredo and Katherine Judge, respectively, for example, expect a BoC hold until 2027.

Similarly, those seeking auto loans may find stability in the financing offers from dealers and lenders.

“If you’ve been comparing rates, you can move forward knowing costs won’t suddenly spike,” Macmillan added.

In a note toYahoo Finance Canada, Indrani De, head of global investment research at FTSE Russell, says today’s pause “makes economic sense” given the latest economic data and a policy rate “already at the low end of neutral.”

Financial conditions in Canada were “much looser than in most of the G7”, according to FTSE Russell Financial Conditions Indicator metrics.

In the last three years, FTSE Russell data looking at average monthly returns around rate decisions show Canadian markets “remain basically flat” after a policy hold, De notes.

“[A] pause generally leads to slightly positive returns on an absolute basis and slightly negative in demeaned terms (meaning after taking out the generally upward trend average),” she said.

The BoC’s decision to comment on the run of positive job data and its 2026 outlook was significant, Dustin Reid, chief strategist, fixed income at Mackenzie Investments, said in a statement.

The BoC appears to be aware of the market’s increasing lean towards a rate hike next year, Reid says, and “through today’s decision and statement, is subtly pushing back on current market pricing.”

The December announcement does not feature an update to the economic forecast, meaning the BoC could have held out until January, Reid argues. “However, it chose to note the gains in the labour market do not change its 2026 outlook and that a fair degree of downside macro uncertainty still lies ahead, not only for the Canadian economy but also given the upcoming USMCA review.”

Mackenzie Investments’ call remains for a further 50 basis points of cuts by mid-2026.

The BoC says GDP growth is likely to be weak in the fourth quarter, before picking up in 2026. CPA Canada’s top economist is calling for consumer spending to gain momentum in the final months of 2025.

“Early indicators point to consumption picking back up,” David-Alexandre Brassard stated in a news release on Wednesday.

He says CPA Canada’s holiday spending survey reinforces this trend, with 81 per cent of Canadians planning to make holiday purchases, and 59 per cent expecting to spend about the same as they did last year.

“It’s further evidence of cautious but steady consumer resilience,” Brassard added.

Investors are looking ahead to what the Bank of Canada has in store for rates in 2026, following the central bank’s pause on Wednesday.

Geoff Phipps, a portfolio manager and trading strategist at Toronto-based asset manager Picton Investments, is pushing back against recent forecasts for hikes next year.

“Markets have actually priced nearly a full rate hike in 2026, which I view as an overly optimistic assessment of the economy,” he stated in an email on Wednesday.

“We’ve recently received stronger-than-expected employment data, and an uptick in GDP, but the internals still appear weak. In November, the unemployment rate dropped to 6.5% (down 40 bps) but was largely accounted for by a lower participation rate and immigration. Payroll data has also failed to meaningfully pick up,” Phipps added.

“The risk here is that BoC suppresses the business cycle on the basis of some improvement in headline data despite weak internals.”

The Bank of Canada is expected to hold rates throughout all of 2026, according to Michael Davenport, senior economist at Oxford Economics.

The hold will continue as the BoC balances upside risks to inflation from the trade war and an uncertain trade policy environment, against downside risks to inflation from weak domestic demand, he added.

“Like most aspects of the outlook for 2026, the path ahead for the BoC will likely hinge on U.S.-Canada trade policy and the upcoming renegotiation of the USMCA,” he said.

Davenport expects the BoC is likely to hike the policy rate to 2.75 per cent in early 2027.

BMO chief economist Douglas Porter argues that the BoC’s tone seemed designed to counter suggestions that rate hikes are approaching.

Improved GDP data, including upwardly revised numbers for recent years “really seem to have caught the Bank’s eye,” Porter writes. But the BoC signalled expectations for weak growth in the fourth quarter and a “choppy quarterly growth pattern in 2026,” Porter says, and similarly waved off some of the strength in recent employment data.

“This clear language and the mild take on recent jobs data were likely aimed at containing the recent upswing in bond yields; basically sending a sharp reminder that the rate cut cycle is not necessarily done,” he says.

“We continue to believe that there is a greater chance of a BoC rate cut than a hike in 2026, even if the most likely outcome is no move at all. As an aside, a year without any rate moves would hardly be an anomaly; fully seven of the past 15 years have seen the Bank on hold for a full calendar year.”

Policymakers seem “somewhat wary” of accepting the recent jobs U-turn indicated by last week’s Labour Force Survey at face value, according to Desjardins economist Tiago Figueiredo.

While the central bank acknowledged that the labour market has shown some signs of improvement and that employment in trade sectors has stabilized, it’s likely that uncertainty will continue to keep hiring intentions muted, he said.

Figueiredo added that he expects the central bank will keep rates on hold throughout 2026.

Data showing a stronger-than-expected economy doesn’t change the mood for many Canadians who are stressed out by months of trade war uncertainty, Senior Deputy Governor Carolyn Rogers says.

“There is a sort of an overwhelming feeling of uneasiness or uncertainty that I think hangs over Canadians right now,” she said. “So we’re acutely aware of that.”

The BoC’s commitment remains to keep inflation on target, she added.

“It’s not going to bring prices down … but it is a source of stability that we can add to a very uncertain picture.”

Swaps traders and economists have recently targeted the second-half of 2026 as the start of a new Bank of Canada rate hike cycle. However, Étienne Bordeleau-Labrecque, a portfolio manager at Toronto-based Ninepoint Partners, thinks investors ought to think again following today’s announcement.

“No discussion of hikes, and a lot of the text highlights the fact that Canada’s economy is going through a painful period of transition, which will likely mean lower growth and dynamism,” he stated in an email.

“This should throw cold water on the current market pricing, [which] was pricing as much as 30 basis points of hikes in 2026.

During the press conference following the Bank’s rate announcement today, Governor Tiff Macklem responded to a question about whether traders are getting ahead of themselves in pricing in rate hikes.

“What markets can count on is, we’re going to take our decisions one at a time, based on the best available information. And you know, as our views evolve, we will update Canadians. We’ll update markets,” said Macklem.

BoC governor Tiff Macklem said the Bank of Canada will not lower prices overall, in this morning’s conference call.

“If we were to try to push the whole price level down, that would cause a severe recession in Canada,” Macklem said.

Instead, to improve affordability, there’s a need to grow income by boosting productivity, investing more, and diversifying trade, added senior deputy governor Carolyn Rogers.

The BoC plans to maintain inflation at its target and support the structural shift that the economy is undergoing, she said. As the economy grows, it should fix affordability issues that have been so tough for Canadians.

Bank of Canada governor Tiff Macklem was asked on Wednesday about recent forecasts for the central bank to raise rates beginning in the second half of next year.

Traders in overnight swaps, as well as recent projections from economists, have predicted a hike from the central bank in late-2026.

“I’m not going to put our policy on a timeline,” Macklem told reporters, responding to a question about the timing of a potential rate hike.

“What markets can count on is we’re going to take our decisions one at a time, based on the best available information.”

The federal budget is expected to add both supply and demand to the Canadian economy, without bringing additional inflationary pressures, said Bank of Canada governor Tiff Macklem on today’s conference call.

Specifically, he noted that the budget’s increase in allocation for government spending will support demand, while also nodding to its focus on investment — both public investment and its goal of stimulating private investment.

However, Macklem added it will take some time for the impact of those measures to be realized.

Royal LePage CEO Phil Soper says the Bank of Canada’s rate hold on Wednesday will help firm up Canada’s mortgage market.

In a widely expected move, the central bank held its benchmark interest rate steady at 2.25 per cent, following nine cuts since the summer of 2024.

“Mortgage rates are no longer the villain in this story,” Soper stated in a news release after Wednesday’s decision.

“Borrowing costs have stabilized at a level that supports healthy market activity,” he added, echoing remarks in his firm’s recently published 2026 market survey forecast.

“Buyers can move forward without worrying they are missing out on cheaper money tomorrow. That clarity alone will unlock demand.”

In a note to clients, CIBC economist Katherine Judge focuses on the BoC’s interpretation of various economic data that exceeded observers’ expectations.

“Policymakers played down recent upside surprises in data, pointing to only some signs of improvement in the labour market, with trade-sensitive sectors still weak and hiring intentions muted, and citing that final domestic demand was flat in Q3, with the headline reading driven by volatility in trade,” Judge writes.

Those “comments that push back on recent upside surprises in the data seem to suggest that the risks ahead would be to the downside, and that resulted in bond yields easing off,” she added.

CIBC now expects the BoC’s current polirate to hold through 2026.

Today’s Bank of Canada rate hold does little to provide credit stress relief to small business owners, according to David Gens, founder and CEO of Merchant Growth.

“The rate hold may support stability from a policy standpoint, but that’s not what we’re seeing on the ground. Credit scores in our applicant pool are materially declining because business owners are tapping their personal lines of credit just to stay afloat,” Gens said.

A rate hold will only decrease consumer confidence around spending. Likewise, small businesses will continue to pause investments in hiring and expansion, he said.

“Small businesses are already seeing weak consumer demand over the holidays, when they typically rely on it to boost sales,” he added.

“Heading into next year, this rate hold makes them anxious about how they’ll perform in the slower months post-holidays while costs are still up and customers aren’t spending as much.”

The Bank of Canada’s decision to hold its key lending rate steady on Wednesday comes as Canada’s housing market enters a traditionally slow time of year, according to Rates.ca.

“The hold provides some stability, but it’s not likely to spur a significant increase in sales activity during the holiday season,” mortgage and real estate expert Victor Tran stated, following the Bank’s announcement.

“We may see some pickup early next year, if homebuyers feel confident enough to step off the sidelines,” he added.

Rates.ca says the biggest takeaway from Wednesday’s decision is for homeowners preparing to renew their mortgages.

“Waiting until the last minute could mean leaving money on the table,” Tran stated. “These days, every bit counts for many homeowners.”