BoC to Leave Rates Unchanged Wednesday, Says RBC

07:21 AM EST, 12/09/2025 (MT Newswires) -- A hold by the Bank of Canada at Wednesday's policy meeting should be relatively uncontroversial, said RBC.

After October's rate cut, policymakers signaled that "the current policy rate is about the right level" to deliver low, steady inflation while supporting growth through uncertainty.

Delayed September Canadian trade data would need to show a 3.4% increase in merchandise export volume from August, and a 3.1% decrease in goods import volume in order to match the details in Q3 gross domestic product data from last week, pointed out the bank.

More important still are the U.S. Census Bureau trade details showing whether CUSMA exemptions continued to hold up and support Canadian exports to the U.S. in September, RBC said.

The BoC's holding bias was contingent on its forecast for soft but positive economic growth, RBC added. Q3 GDP surprised to the upside, rising at a 2.6% annualized pace versus the BoC's 0.5% projection, with mixed details.

But labor markets have also shown more signs of stabilizing, with employment rising 54,000 in November after already firm increases in September and October. The less-volatile unemployment rate dropped to 6.5% in November from 7.1% in September. Weakness still exists among tariff-exposed manufacturing sectors, but economy-wide layoffs have remained low.

As a result, household spending has broadly remained resilient this year despite a tick lower in Q3. Spending was, in part, supported by earlier BoC rate cuts that have reduced debt service pressures. Financial market gains have bolstered net worth, adding to aggregate purchasing power, according to the bank.

RBC expects those trends will have persisted in Q3, and Friday's national balance sheet data to show little change in households' debt service ratio from the Q2 level that was already below 2019, and further gains in financial assets and net wealth.

Today, underlying inflation pressures are running above the BoC's 2% inflation target, and could prove stickier than the central bank would like in the future, thanks to stronger-than-expected consumer and government spending in 2026. RBC's base case assumes per-capita growth will slowly improve in 2026 with no additional interest rate cuts from the central bank.

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