December 11, 2025 —

The Bank of Canada held its key policy interest rate at 2.25% during its December 10 announcement, keeping the Bank Rate at 2.50% and the deposit rate at 2.20%. For homeowners, mortgage shoppers, and anyone planning a renewal in 2026, the decision signals a steady path. It also reinforces the Bank’s view that inflation is close to target and that the economy has remained “surprisingly resilient” despite global uncertainty, supply-chain realignment, and sluggish growth in some trading partners.

Why the Bank Paused

The central bank’s Governing Council noted that inflation has eased to within sight of the 2% target, supported by slower goods inflation and improving supply-demand balance. At the same time, Canadian economic activity has not cooled as sharply as expected earlier in the year. Employment has shown pockets of strength, immigration-driven housing demand remains elevated, and consumer spending has not pulled back as severely as forecast.

By keeping rates unchanged, policymakers are aiming to maintain a stable environment as they monitor how earlier rate cuts continue passing through the economy. The Bank emphasized that it needs “more consistent evidence” of inflation staying near 2% before considering any reductions in its policy rate path.

Impact on Fixed Mortgage Rates

While the Bank of Canada does not directly set mortgage rates, its decisions strongly influence short-term market behaviour. Fixed mortgage rates are priced off Government of Canada bond yields, which saw moderate volatility in recent weeks as traders weighed the likelihood of any future cuts. The rate hold helped calm expectations, and that stability could ease pressure on the five-year bond yield.

For borrowers, this means that fixed mortgage rates may remain elevated but predictable—likely hovering just above 4%, according to several rate-monitoring platforms. Lenders tend to move cautiously during periods of central bank uncertainty, so a prolonged rate hold can contribute to more competitive pricing as institutions adjust for year-end lending targets.

Impact on Variable Mortgage Rates

Variable-rate mortgage holders will see no immediate change to their payments because prime lending rates across major banks are typically tied to the central bank’s overnight rate. With the overnight rate locked at 2.25%, lenders are expected to hold their prime rate steady as well.

For those who converted from variable to fixed earlier in 2024 and 2025, today’s decision may offer reassurance that volatility is subsiding. However, lenders continue warning borrowers that the path for rates in early 2026 depends heavily on global inflation and economic performance.

Housing Market Considerations

The Bank’s decision has broader implications for the housing market, which has experienced shifting dynamics throughout 2025. Demand in major cities such as Toronto, Vancouver, and Calgary continues to outpace supply, although higher borrowing costs have slowed price growth. Many economists expect modest price stabilization through mid-2026, with a potential rebound later in the year if affordability gradually improves.

A steady policy rate can also support new construction financing—a sector that has struggled with building-cost inflation and labour shortages. Developers often rely on predictable lending conditions to plan multi-year projects, and today’s rate pause is likely to be welcomed across the industry.

What Borrowers Should Watch Next

Consumers should pay attention to:

Inflation prints early in 2026. If inflation falls consistently below 2.5%, markets may price in a mid-year rate cut.
Bond yield movements. These will drive fixed mortgage rates more directly than the Bank’s policy rate.
Global economic pressures. Slowdowns in the U.S., Europe, or Asia could shift expectations quickly.

The Bank of Canada’s decision to hold its policy interest rate at 2.25% provides borrowers with a rare moment of predictability after several years of rapid rate movements. While fixed and variable rates are still elevated compared to pre-pandemic norms, the tone of this announcement suggests that policymakers see the economy moving in a stable direction. Anyone approaching a renewal, planning a purchase, or considering refinancing now has a clearer view of the road ahead.