Bank of Canada Holds Rates as Price Pressures Linger
So, here’s what’s going on right now with the Bank of Canada, and why it’s such a big talking point. The central bank has decided to hold its benchmark interest rate at 2.25 per cent in its final update of 2025. This move didn’t really shock anyone—most economists had already predicted a hold, especially after a string of more positive economic indicators in recent months. Things like GDP growth, inflation settling closer to the two-per-cent target, and unemployment edging down all suggested the economy was stabilizing.
But even with that stability, uncertainty is still hanging around. And that’s why the Bank isn’t rushing into more cuts. In fact, some experts believe the next move could actually be a hike sometime in the second half of 2026. Economists say tariff pressures from the U.S. are still creating complications, pushing up costs for Canadian producers and increasing the risk of inflation ticking higher again. With those conditions, a future rate increase can’t be ruled out.
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The Bank’s governor, Tiff Macklem, reinforced that message. He explained that the current rate—2.25 per cent—is seen as being “at about the right level” for the economy as it stands. After four rate cuts earlier this year, and a long stretch of steady decisions before that, the focus now is on holding things steady while the economy adjusts. The Bank updates monetary policy eight times a year, and an unchanged rate usually means borrowing costs are roughly where they should be.
But this announcement also came with a reality check. Macklem was asked, very directly, why people aren’t feeling relief even though inflation has reportedly come down. And he didn’t sugar-coat it: inflation has cooled, but prices haven’t. Things that became more expensive during the pandemic didn’t suddenly get cheaper afterward—they simply stopped rising as fast. That’s why Canadians are still feeling the pressure.
He stressed that trying to force prices downward would actually be harmful. Pushing prices down intentionally would likely trigger a severe recession, something the Bank is determined to avoid. The safer path, according to Macklem, is growing incomes. And the way to grow incomes is by improving productivity, investing in the economy, and broadening trade relationships. If income growth catches up to the higher price level, affordability improves naturally.
The Bank’s message is clear: the rate is stable for now, uncertainty remains high heading into 2026, and the priority is maintaining confidence in Canada’s price stability. Even though prices aren’t dropping, the focus is on creating conditions where Canadians can better keep up—and eventually feel the benefits more directly.
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