Bank of Canada Keeps Rates on Hold as Expected

10:01 AM EST, 12/10/2025 (MT Newswires) -- The Bank of Canada on Wednesday held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

The BoC's decision was in line with expectations

As background, Canada's economy grew by a surprisingly strong 2.6% in Q3, even as final domestic demand was flat. The increase in gross domestic product largely reflected volatility in trade.

Canada's central bank said it expects final domestic demand will grow in Q4, but with an anticipated decline in net exports, GDP will likely be weak. It added growth is forecast to pick up in 2026, although uncertainty remains high and large swings in trade may continue to cause quarterly volatility.

Canada's labor market is showing some signs of improvement. Employment has shown solid gains in the past three months and the unemployment rate declined to 6.5% in November. Nevertheless, job markets in trade-sensitive sectors remain weak and economy-wide hiring intentions continue to be subdued, wrote the BoC in its policy statement.

On the consumer price index, the BoC noted inflation slowed to 2.2% year over year in October, as gasoline prices fell and food prices rose more slowly. CPI inflation has been close to the 2% target for more than a year, while measures of core inflation remain in the range of 2.5% to 3% year over year.

The BoC said it assesses that underlying inflation is still around 2.5%. In the near term, CPI inflation is likely to be higher due to the effects of last year's GST/HST holiday on the prices of some goods and services.

Looking through this choppiness, the BoC added that it forecasts ongoing economic slack to roughly offset cost pressures associated with the reconfiguration of trade, keeping CPI inflation close to the 2% target.

If inflation and economic activity evolve broadly in line with the October projection, the Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.

Uncertainty remains "elevated," according to the BoC. If the outlook changes, the BoC noted it's prepared to respond.

The BoC said it's focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.

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