The Bank of Canada has closed out the year with another rate pause, choosing to hold its key interest rate at 2.25 per cent in its final policy update for 2025. The decision, according to Global News, comes after four cuts earlier in the year and reflects a central bank that believes borrowing costs are now sitting at an appropriate level for the Canadian economy. Speaking to Global News, Governor Tiff Macklem warned that ongoing U.S. tariffs introduced by President Donald Trump are dampening economic efficiency and may pose challenges ahead.
Recent economic indicators offered a mixed but steady picture. GDP readings, consumer inflation data from the consumer price index, and labour turnover surveys have all shown modest improvement, including lower unemployment for two consecutive months. According to Global News, many economists anticipated today’s pause and now believe the next policy move may actually be a hike rather than a cut, especially by late 2026. Derek Holt at the Bank of Nova Scotia noted that markets are beginning to consider the likelihood of rate increases by summer or fall of next year.
Concerns over inflation remain central to the outlook. Speaking to Global News, Claire Fan of the Royal Bank of Canada said the trade war environment continues pushing business costs higher, even if Canadian firms are not directly paying U.S. tariffs. She added that factors such as supply chain alterations and higher American prices mean inflation risks are leaning upward. If these pressures intensify, RBC believes rate hikes in the second half of 2026 become increasingly plausible.
In its statement, the Bank of Canada reiterated that the current rate level is consistent with keeping inflation near its two per cent target while helping the country navigate structural economic shifts. The central bank emphasized that uncertainty remains high and that it stands ready to respond if conditions change. Monetary policy is updated eight times per year, and holding the rate steady at a meeting generally signals that borrowing costs are appropriately calibrated to economic conditions.
Macklem also addressed affordability concerns, acknowledging during a press conference that many Canadians still feel strained by high prices. He stressed that inflation has stabilized for over a year, but price levels remain much higher than before the pandemic. According to Global News, Macklem cautioned that forcing prices down artificially would trigger a severe recession, and instead argued that stronger productivity, increased investment, and more diversified trade are the real pathways to higher incomes and better affordability. A recent Bank of Canada report supports this view, emphasizing that raising economic productivity is the most effective way to lift incomes for Canadian workers.
