Bank of Canada Holds Interest Rate at 2.25%

The Bank of Canada kept its benchmark interest rate unchanged at 2.25% in its final policy meeting of 2025, maintaining a steady stance as policymakers continue to monitor inflation dynamics and economic momentum.

Governor Tiff Macklem said the decision to hold the rate at the lower end of the neutral range offers support to the economy without adding new inflationary pressures. The move aligns with economists’ expectations, with most forecasting that rates will remain on hold through the early months of 2026 unless the economic outlook shifts materially.

Global Uncertainty Weighs on Outlook

Macklem emphasized that global uncertainty remains “very high,” pointing to rising U.S. trade protectionism and ongoing renegotiations of the Canada–United States–Mexico Agreement (CUSMA).

The bank warned that escalating U.S. tariffs could significantly weigh on growth.

According to the October Monetary Policy Report, the trade dispute is projected to reduce Canada’s GDP by 1.5%, roughly C$40 billion, by the end of 2026. The bank expects the Canadian economy to grow at an average pace of 1.4% in 2026 and 2027.

Despite external pressures, Macklem said the Canadian economy is “stronger than it appeared a few months ago,” citing improvements in consumer spending, business investment and productivity.

He noted that the impact of American tariffs has been limited across most sectors, although the bank continues to assess exposure to potential future rounds of trade action.

Inflation stood at 2.2% in October, broadly consistent with the bank’s forecasts. Macklem cautioned that short-term fluctuations are likely, but said inflation risks remain manageable under current policy settings.

As Canada heads into 2026, the central bank appears poised to maintain a cautious, data-driven approach, balancing stronger-than-expected domestic fundamentals against rising geopolitical and trade-related uncertainties.