The Bank of Canada has announced it will maintain its target for the overnight rate at 2.25 percent, with the Bank Rate set at 2.5 percent and the deposit rate at 2.20 percent.
According to the central bank, major global economies are showing resilience despite ongoing US trade protectionism, though uncertainty remains high. In the United States, economic growth is supported by strong consumer activity and increased investment in artificial intelligence, but a recent government shutdown caused volatility in quarterly growth and delayed some key data releases. Tariffs have contributed to higher inflation in the US. The euro area has experienced stronger-than-expected growth, especially in services, while China faces weaker domestic demand due to a sluggish housing market.
Within Canada, economic output grew by 2.6 percent in the third quarter of 2025—an unexpectedly strong result attributed largely to volatile trade figures even as final domestic demand was flat. The Bank anticipates that while final domestic demand may rise in the fourth quarter, GDP growth will likely be weak because of an expected decline in net exports. Growth is forecasted to improve in 2026 but with continued uncertainty and potential for significant swings due to trade fluctuations.
Labour market indicators suggest some improvement; employment has risen over the past three months and unemployment fell to 6.5 percent in November. However, sectors sensitive to international trade remain weak and overall hiring intentions are subdued.
Consumer price index (CPI) inflation slowed to 2.2 percent in October as gasoline prices declined and food prices increased more slowly. Inflation has hovered near the central bank’s two-percent target for over a year, though core inflation measures remain between 2.5 and three percent. The Bank estimates underlying inflation is about 2.5 percent currently and expects CPI inflation could rise temporarily due to last year’s GST/HST holiday effects on certain goods and services prices.
“If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment,” said officials from the Bank of Canada.“Uncertainty remains elevated.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.”
The next announcement regarding Canada’s overnight rate target is scheduled for January 28, 2026 when an updated Monetary Policy Report will also be released.
