Bank of Canada holds target interest rate at 2.25% in December 2025 announcement

After delivering several rounds of rate relief, monetary policy makers are returning to the status quo; in its final announcement of 2025, the Bank of Canada has opted to leave its trend-setting overnight lending rate – which is used by lenders to set their prime rates and, by extension, variable mortgage rates – unchanged at 2.25%, ushering in an era of rate stability for the foreseeable future.

As a result, the prime rate in Canada will remain at 4.45%, and in turn, the lowest five-year variable mortgage rate will stay unchanged at 3.45%.

This hold follows two consecutive rate cuts from the Bank in September and October, which had cumulatively lowered its rate by 50 basis points, bringing it to 2.25%. That’s the lowest the rate has been since the spring of 2022, and moves it to the lower end of what the Bank considers “neutral” – lowering the rate any further would likely stoke inflation.

Combined with the seven rate cuts passed down from the Bank between June 2024 and March 2025, the benchmark rate has decreased a total of 275 basis points from its five-year peak of 5%.

A widely anticipated rate hold

That the Bank would ease off that stimulus gas pedal today came as little surprise to economists; its Governing Policy had stated as much in their last announcement, saying that should inflation and economic growth evolve as expected, the current policy rate is “at about the right level” to support current conditions. They doubled down on that sentiment today, repeating the language that, should “inflation and economic activity evolve broadly in line” with their October projection, the current rate will keep the economy steady through adjustments to trade policy.

However, the Bank emphasized that this would change should the economic landscape crumble, or if tariffs cause price volatility. “If the outlook changes, we are prepared to respond. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval,” states the Bank’s announcement.

What has further reduced the chance of a cut is the fact that the latest economic data has come in much stronger than expected, particularly in the labour market; the November report blew expectations out of the water, showing a whopping 54,000 jobs were added to the economy, which pulled the unemployment rate back down by 0.4% to 6.5%.

That surprise came on the heels of a shockingly positive  third-quarter GDP report, which showed Canada’s economy grew by 2.6% between July and September – wiping out both the BoC’s own 0.5% forecast, and the chance of a recession. The Bank says that this unexpected strength is largely due to volatility in trade, and that while Q4 will have a strong showing for consumer demand, exports will drop and lead to an overall weak final quarter. Growth is expected to recover next year, but will continue to face plenty of trade uncertainty. They also pointed to the fact that while jobs numbers look strong, tariff-affected industries have been hard hit, and will continue to add weakness as long as companies continue to face extra export costs.

Inflation also remains close to the Bank’s targets, with the October headline number coming in at 2.2%, and the core measures indicating price growth has broadly cooled across a number of consumer goods and service categories. Overall, the Bank expects inflation to stick close to 2% for the near term, even as the year-over-year impacts of last year’s GST holiday start to fade – further cementing the rationale for a prolonged rate hold.

Will the Bank of Canada continue to hold rates?

What’s less certain are the Bank’s next steps. While the economy is proving to be stubbornly resilient in the  face of shifting global trade policy, there is still plenty of uncertainty facing rate policy makers. The economy could still be hit at any time by surprise tariff upheaval, and the renegotiation of the United States-Canada-Mexico Agreement (USMCA) – slated to start this summer – remains a point of tension. Should those talks fall through, it would newly expose a significant number of Canadian exports to tariffs, and throw the economy into upheaval.

For the most part, though, markets are pricing in stability – and little chance of future rate cuts, at least in Canada. Bond yields have been pricing this in, steadily increasing following the GDP and labour report releases. Currency, the Government of Canada five-year yield is above 3% – a range not seen since this past August. And, should inflation start to tick higher, there's the possibility the Bank could even hike rates again in the new year. 

What does this mean for your mortgage rate?

Variable mortgage rates won’t change

Those who are most directly impacted by this latest rate hold are those who already have variable-rate mortgages – your current mortgage rate will remain the same, as will the size of your monthly payments, and the amount of that payment that services interest.

That’s also good news for those currently shopping for a variable mortgage rate as today’s rates remain their lowest since 2022. However, there’s always the possibility that lenders will decrease the spread between their rate pricing and their prime rates in the near future; it’s still a good idea to get a rate hold now to guarantee access to the current spread and rates.

Fixed mortgage rates are already on the rise

Fixed mortgage rates are not directly influenced by the Bank’s rate policy, but they are impacted by the bond market; when the risk of bonds – and as a result, their yields – rise, lenders further price that risk into their fixed-rate borrowing products. Fixed mortgage rates have already moved sharply upward in the week ahead of the rate announcement, by roughly 20 basis points; the lowest five-year fixed rate has increased to 3.89%. 

This has no impact on those already in fixed-rate mortgage terms; these rates remain the same for the entirety of the term, regardless of market factors. But the same rate hold advice applies to anyone currently shopping for a mortgage; with bond yields on the rise, and economic data surprising on the upside, borrowers can expect fixed rates to increase further.

A different scenario south of the border

Canadian rate watchers should also be keeping a keen eye on US monetary policy developments, as they impact Canadian bond markets, and – to an extent – can influence our central bank rate decisions.

Currently, a very different scenario is playing out for the US Federal Reserve, which is the American counterpart to the Bank of Canada; while economic and inflation numbers have been solid in recent months, the Fed is under enormous political pressure to cut rates. It’s anticipated that they will lower their Federal Funds Rate by 25 basis points in their own announcement this afternoon, likely to be accompanied by language suggesting holds to come in the future. This divide within the central bank and White House will only roil markets further, especially if a premature rate cut fuels American inflation.

Also read:

• What does the December Bank of Canada rate hold mean for loans?
• The Consumer Price Index in Canada
• The Prime Rate in Canada
• What is the Bank of Canada’s Overnight Lending Rate?