Bank of Canada maintains policy rate at 2¼%

2025-12-10 · Market News · QuoteReporter

The Bank of Canada has decided to maintain its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. This decision comes amidst mixed global economic signals and consistent domestic economic performance, with a focus on maintaining inflation close to the 2% target.

Key Points

• Interest Rates: The overnight rate remains at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
• Global Economy: Resilience noted in major economies despite US trade protectionism; US growth supported by strong consumption and AI investment; Euro area growth stronger than expected; China faces soft domestic demand.
• Canadian Economy: Strong GDP growth of 2.6% in Q3, despite flat final domestic demand. Employment gains and a decrease in the unemployment rate to 6.5% in November.
• Inflation: CPI inflation slowed to 2.2% in October, with underlying inflation around 2½%. Near-term projections see CPI inflation likely higher due to past GST/HST holiday effects.
• Future Projections: Economic growth expected to pick up in 2026, though quarterly volatility may continue due to trade fluctuations.

Economic Guidance

The Bank of Canada observes that while global financial conditions, oil prices, and the Canadian dollar have remained stable since the October Monetary Policy Report, various global and domestic factors are influencing the economic outlook. In the US, economic activities are buoyed by consumption and AI investments, though affected by government shutdowns and tariff-induced inflation pressures. The Euro area is experiencing stronger growth, particularly in services, while China’s growth is dampened by weaker domestic demand. Domestically, Canada’s strong third-quarter GDP growth is primarily driven by trade volatility, with expectations of growing final domestic demand in the fourth quarter. However, a decline in net exports is anticipated to weaken GDP. The labor market shows signs of improvement, though trade-sensitive sectors and overall hiring intentions remain subdued.

Forward Guidance

The Bank of Canada indicates that if inflation and economic activity continue to align with the projections set out in the October report, the current policy rate is deemed appropriate for maintaining close to 2% inflation and supporting the economy through structural adjustments. The Bank remains prepared to respond if the economic outlook changes significantly, emphasizing its commitment to ensuring price stability amid ongoing global uncertainties. The next scheduled rate announcement and Monetary Policy Report release are set for January 28, 2026.

Original Announcement

Title: Bank of Canada maintains policy rate at 2¼%
Date: 2025-12-10
Source: Bank of Canada