Bank of Canada in No Rush to Validate Markets' Hiking Bias, Says National Bank

12:25 PM EST, 12/10/2025 (MT Newswires) -- The Bank of Canada held its policy rate unchanged on Wednesday as expected, but stopped short of validating markets' expectations for rate hikes as soon as the middle of next year, said National Bank of Canada.

Instead, policymakers have adopted a more balanced view of recent improvements in hard economic data, noted the bank. The BoC acknowledged stronger gross domestic product growth but balanced that by pointing to weak domestic demand and ongoing economic slack.

Similarly, Canada's central bank admitted there are signs of recovery in the labor market, but it still points to weakness in trade-related sectors and subdued "economy-wide" hiring plans, stated National Bank.

Rather than tearing up its October forecast, Governor TIFF Macklem judged the BoC's economic outlook has not changed materially. There was similar stability on its closely watched assessment of "underlying inflation." It still saw this running "around 2.5%."

This all contributed to unchanged guidance. The BoC still thinks the policy rate is at "about the right level" to achieve its mandate and it stands ready to respond to more material changes to the outlook, added the bank.

Going forward, National Bank sees the BoC holding steady through at least the first half of the year.

In light of recent data, the bank pulled forward its expected timing for the start of rate hikes to Q4 2026 from Q1 2027. National Bank felt that timing balances the two-sided risks facing the economy.

If the unemployment rate were to continue falling and inflation remains warm, National Bank could see the BoC tighten as early as Q3. Meanwhile, hikes could be pushed back into 2027 if recent labor market improvements were to be unwound or the 2026 USMCA trade deal review were to prove "messy/disruptive."

The BoC's next decision will take place on Jan. 28 and will be accompanied by a Monetary Policy Report. The Summary of Deliberations for Wednesday's decision will be released on Dec. 23 at 1:30 p.m. ET. Before then, Governor Macklem will deliver a speech in Montreal next Tuesday.

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