BoC Expected to Hold Rates Steady in December After Strong Economic Data

The Bank of Canada is anticipated to keep interest rates unchanged at its December meeting, following a year of aggressive easing and a recent wave of stronger-than-expected economic indicators. After nine consecutive cuts, the benchmark rate now stands at 2.25%, down from 5.00%, marking the lowest point within the neutral zone that neither stimulates nor restricts growth.

In its October policy report, the central bank suggested that the cycle of reductions may have ended. That view has been reinforced by recent data: third-quarter GDP growth surprised on the upside, and three consecutive labor market reports exceeded forecasts. As a result, analysts see virtually no chance of a rate cut in December, with market pricing showing just a 1.2% probability. Looking further ahead, the odds of a rate hike in September 2026 have risen above 31%.

December Meeting Significance

No new monetary policy report will be released this month, making the official statement and press conference the primary sources of guidance. Analysts expect a neutral tone from Governor Tiff Macklem, with little indication of fresh policy shifts. Still, investors will scrutinize whether the bank views recent growth as overstated, given signs of weaker domestic demand in the fourth quarter. November’s jobs data added support to the bank’s stance, showing stronger-than-expected employment gains and a drop in unemployment to 6.6% compared with forecasts of 7.0%.

Challenges Ahead

Despite encouraging data, Canada’s economy faces headwinds. U.S. tariffs remain a supply-side shock, meaning excessive rate cuts could fuel inflation without boosting real activity. Global growth slowdown also threatens Canadian exports and could weigh on performance in 2026. Inflation remains a central concern, with the bank aiming to stabilize prices while avoiding recessionary risks.

Market Implications

By holding rates steady, the Bank of Canada signals caution, preferring to monitor developments before taking further action. For investors, this reinforces confidence in short-term stability while leaving the door open to future hikes if economic strength continues. The pause will also influence housing and mortgage markets, keeping borrowing costs relatively low and supporting real estate demand. Bond investors, meanwhile, will watch the yield curve closely for clues about next year’s policy direction. It is worth mentioning that ecent developments confirm that Canada’s oil exports have expanded significantly in 2024–2025, largely due to the Trans Mountain Expansion Project. This allowed more crude to reach international markets beyond the U.S., diversifying Canada’s export base but also exposing it more directly to global oil price volatility.

December’s meeting is expected to be calm, with the Bank of Canada maintaining rates at 2.25% after a year of easing. Strong GDP and labor market data have reduced the need for additional stimulus, while investors now look toward 2026 for potential policy shifts depending on how global and domestic conditions evolve.