BMO Sees Greater Chance of Bank of Canada Rate Cut Than Hike in 2026; Most Likely Outcome Is A Hold

11:31 AM EST, 12/10/2025 (MT Newswires) -- To the surprise of precisely no one, the Bank of Canada chose to keep its key lending rate unchanged on Wednesday at 2.25%, following 25 basis point trims in each of the prior two decisions, said Bank of Montreal (BMO).

As such, the BoC cut rates by a total of 100 bps for all of 2025, after slashing them by 175 bps in the final five meetings of 2024.

Wednesday's decision was widely anticipated, as officials had signaled in October that the BoC was content with the current level of rates, considered to be at the low end of the estimated range for neutral, unless the economy took a serious turn for the worse, noted the bank.

Instead, the major indicators over the past six weeks have landed quite heavily on the strong side of the ledger, including big job gains and a surprisingly steep pullback in the unemployment rate, solid Q3 gross domestic product growth alongside large upward revisions to earlier years, and a warm consumer price index.

BMO shifted its call to no rate changes for all of 2026 recently and Wednesday's messaging from the BoC appears aligned with that view. Markets have quickly begun to consider when rates may begin to head higher, especially given the turn in soft guidance from other central banks -- most notably Australia's.

However, Canada is still dealing with the heavy cloud of United States trade uncertainty, a cloud that is very unlikely to disperse anytime soon, the bank pointed out. U.S. trade plays a much, much bigger role in Canada's economy than in other major economies.

BMO believes that there is 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 because seven of the past 15 years have seen the BoC on hold for a full calendar year.

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