Bank of Canada Maintains Key Interest Rate at 2.25%, Citing Economic Resilience

The Bank of canada announced on Wednesday, December 10, 2025, its decision to hold its benchmark lending rate steady at 2.25% in its final monetary policy update for the year. This move was widely expected by economists, who had noted the Canadian economy's encouraging performance despite ongoing global challenges, as reported by cbc News.

This decision marks a pause after the central bank implemented four quarter-point interest rate cuts earlier in 2025, as Global News reported. The Bank's Governing Council determined that the current rate is "about the right level" to support the economy's structural adjustment.

Governor Tiff Macklem stated that the policy rate is appropriate to foster this transition while ensuring inflation remains close to the Bank's 2% target, according to CTV News. He emphasized the importance of maintaining price stability amidst global upheaval.

Despite the Canadian economy proving resilient, Macklem acknowledged persistent global uncertainties and trade tensions, particularly concerning U.S. tariffs. These external factors continue to weigh on business investment and create a wider range of possible economic outcomes.

The decision was underpinned by recent positive economic data, including stronger-than-expected third-quarter GDP growth and an improving labor market, as noted by Trading Economics. This data reinforced the consensus among analysts that a rate hold was the most logical step.

However, the Bank of Canada also highlighted that uncertainty remains high, and it stands prepared to respond if the economic outlook changes. This cautious stance reflects the unpredictable nature of the global economic environment and trade policies, according to the Bank's official statement.

The central bank's commitment to its 2% inflation target remains paramount, with Macklem stressing that efforts to force prices lower could trigger a serious recession. He noted that while inflation has come down, prices themselves have not, leading many Canadians to feel "squeezed."

• Background and Previous Policy Actions: The Bank of Canada's decision to hold rates at 2.25% follows a series of four rate cuts throughout 2025, bringing the rate down from 5.00%, as detailed by Mortgage Rate Forecast. These cuts were initiated to stimulate the economy amidst earlier signs of fragility and trade-induced turmoil. The current rate is considered to be at the lower end of the neutral range, aiming to neither stimulate nor stifle economic growth.

• Indicators of Economic Resilience: Recent economic data has shown surprising strength, supporting the Bank's decision. Canada's GDP grew by a robust 2.6% in the third quarter, significantly exceeding expectations, although this largely reflected trade volatility, according to the Bank of Canada. The unemployment rate also declined to 6.5% in November, indicating an improving labor market.

• Global Uncertainties and Trade Tensions: The global economic outlook for 2025 and 2026 has deteriorated due to intensifying trade tensions and heightened policy uncertainty, particularly from the U.S., as reported by Global Affairs Canada. Steep U.S. tariffs on key sectors like steel, aluminum, autos, and lumber have impacted Canadian industries, and the unpredictability of U.S. trade policy continues to weigh on business investment, Governor Macklem stated.

• Inflationary Environment: Headline CPI inflation slowed to 2.2% in October 2025, remaining close to the Bank's 2% target for over a year, according to Statistics Canada data cited by Trading Economics. However, core measures of inflation, which strip out volatile components, are trending closer to 2.5% to 3%, suggesting persistent underlying price pressures. The Bank anticipates some near-term "choppiness" in inflation due to the effects of a previous GST/HST holiday.

• Expert Opinions and Future Outlook: Most economists widely anticipated this rate hold, with many, including those from RBC and Servus Credit Union, suggesting the Bank is likely done with rate cuts for now. Charles St-Arnaud, chief economist at Servus Credit Union, noted that the communique implies a high threshold for any future rate cuts. Experts like TD Economist Marc Ercolao expect the rate to remain steady through 2026, contingent on the economy aligning with projections.

• Impact on Canadian Households and Businesses: While the economy shows resilience, Governor Macklem acknowledged that many Canadians are still struggling with the cost of living, with a recent Angus Reid Institute survey showing 59% concerned about inflation. For businesses, the ongoing trade uncertainty has led some to delay investment and hiring, as the Bank of Canada previously highlighted in March 2025.

• Monetary Policy Flexibility: The Bank's Governing Council reiterated its readiness to adjust policy if the economic outlook changes significantly. This flexibility is crucial given the elevated uncertainty, particularly regarding global trade and its potential impact on Canada's economic trajectory. The Bank aims to ensure confidence in price stability through this period of global upheaval.