Morningstar on What's Ahead for Interest Rates After Bank of Canada Pauses Cuts

12:30 PM EST, 12/11/2025 (MT Newswires) -- To no one's surprise, on Wednesday, the Bank of Canada left its overnight interest rate unchanged at 2.25%, said Morningstar.

Many analysts see the decision as confirming the end of the BoC's monetary easing cycle, about a year and a half after it started, noted Morningstar. This cycle began in the summer of 2024 and saw nine rate cuts that brought the policy rate down from a peak of 5%.

The widely anticipated decision was underpinned by economic strength, seen in consensus-beating job gains for three consecutive months, a good rebound in the Q3 gross domestic product, and consumer price index inflation hovering just above the BoC's 2% target.

However, the door isn't shut to further rate cuts, pointed out Morningstar. The BoC's Governing Council, led by Governor Tiff Macklem, said, "Uncertainty remains elevated, [and] if the outlook changes, we are prepared to respond."

Analysts flag the trade war with the United States as a potential headwind.

In a press conference, Governor Macklem reiterated that the current policy rate "would be about right" if the outlook for inflation and economic activity evolves in accordance with the BoC's October projection. The BoC stresses that the policy rate is "at the lower end of the neutral range and appropriate to provide some support for the economy as it works through this structural transition." There is a growing sense in the market that the era of monetary easing is firmly in the rearview mirror, added Morningstar.

Most analysts now believe the rate-cutting cycle has effectively ended. Broadly, rates are seen as likely to remain unchanged until the end of 2026, unless the trade war with the U.S. worsens or free-trade negotiations take an unexpected negative turn, according to Morningstar.

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