Canada: Bank of Canada holds rates in December
Latest bank decision: At its meeting on 10 December, the Bank of Canada held the target for the overnight rate at 2.25%, following a cut in October.
Recovering economy allows for wait-and-see approach: The Bank likely wanted to judge the effect of the 275 basis points of interest rate cuts since mid-2024 before countenancing any further rate changes. A combination of inflation within the Bank’s 1.0–3.0% target range and a recent recovery in the labor market gave the Bank the leeway to stay put.
Monetary policy likely to be unchanged ahead: Our Consensus is for rates to stay on hold from now to end-2026, though a few panelists see cuts and a few see hikes. Much will likely depend on future changes in U.S. trade policy and their impact on Canadian GDP and inflation.
Panelist insight: On the outlook, TD Economics’ Andrew Hencic said:
“We maintain the view that the balance of risks to the outlook will have the Bank on hold in the coming months. Of course, uncertainty remains sky-high and with discussions about the renewal of the CUSMA trade agreement set to pick up (along with some delayed data), we expect the Bank of Canada to maintain its data dependent approach.”