Bank of Canada Holds Policy Rate at 2.25%
Decision made Amidst Global Economic Shifts
OTTAWA — On December 10, 2025
The Bank of Canada announced it is maintaining its target for the overnight rate at 2.25%, judging the current level sufficient to keep inflation near its target during a period of global economic restructuring. The Bank Rate remains at 2.5% and the deposit rate at 2.20%.
Global Economic Context
The Bank’s decision is set against a backdrop of global resilience tempered by high uncertainty, particularly regarding U.S. trade protectionism. Key international observations cited by the Bank include:
• United States: Growth is being supported by strong consumption and a surge in investment in artificial intelligence (AI), though tariffs are exerting upward pressure on inflation.
• Europe and China: The euro area has seen stronger-than-expected growth driven by the services sector, while China continues to grapple with soft domestic demand and a weak housing market.
• Financial Conditions: Global oil prices, financial conditions, and the value of the Canadian dollar have remained roughly unchanged since October.
The Domestic Landscape
The Canadian economy posted a surprisingly strong growth rate of 2.6% in the third quarter of 2025. However, the Bank notes that this figure masks underlying softness; final domestic demand was flat, and the GDP increase was largely driven by volatility in trade.
While the Bank anticipates final domestic demand will grow in the fourth quarter, it expects a decline in net exports to result in overall weak GDP performance.
Labor Market Updates:
• Employment has seen solid gains over the last three months.
• The unemployment rate fell to 6.5% in November.
• Despite these improvements, hiring intentions remain subdued, and sectors sensitive to trade continue to show weakness.
Inflation Outlook
Consumer Price Index (CPI) inflation slowed to 2.2% in October, largely due to falling gasoline prices. While total inflation has hovered near the 2% target for over a year, the Bank remains cautious regarding underlying pressures:
• Core inflation measures currently sit in the 2.5% to 3% range.
• Short-term inflation figures may rise temporarily due to the statistical effects of last year’s GST/HST holiday.
The Bank expects that ongoing economic slack will help offset cost pressures arising from the reconfiguration of trade, keeping inflation close to the 2% target.
Forward Guidance
The Governing Council views the current policy rate as being at “about the right level” to support the economy through structural adjustments while maintaining price stability. However, officials emphasized that uncertainty remains elevated and they are prepared to adjust the policy if the outlook changes.
The next scheduled interest rate announcement and Monetary Policy Report will be released on January 28, 2026.