The Bank of Canada (BoC) is set to announce the final interest rate update of the year next Wednesday.
Canada’s central bank lowered the key interest rate by 0.25 points from 2.5 to 2.25 per cent in October.
The interest rate drop came after another drop in September, when the Bank of Canada lowered the lending rate by 0.25 points from 2.75 to 2.5 per cent.
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One expert predicts that the crown corporation will “settle into a holding pattern” to close out 2025.
“Its Governing Council clearly indicated they feel the current policy rate level is right to support the economy and temper inflation, while also pointing out that monetary policy can only do so much while businesses adapt to the current trade scenario,” explained Penelope Graham, Ratehub.ca mortgage expert. “Fiscal support will be needed to support affected industries, rather than lower interest rates alone.”
She added that the latest economic outlook suggests the likelihood of a December rate hold. Despite October inflation numbers coming in stronger than the bank expected, Graham said they’ve indicated they believe the upward pressure is beginning to ease, with overall inflation sitting at around 2.5 per cent.
“This is over the Bank’s target, and presents a roadblock to any further cuts at this time, but is also unlikely to cause a hike as the Bank expects shelter and goods costs to continue to ease, and that the removal of Canadian counter tariffs will also keep a lid on price growth,” she said.
How the Bank of Canada interest rate update could affect mortgages and housing
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According to Graham, despite the housing market lagging behind last year’s levels, buyer demand has increased steadily over the past six months.
“Home prices, meanwhile, have yet to re-heat, and plenty of available inventory has made for buyer-friendly conditions in most Canadian markets,” she explained.
“While economic uncertainty continues to impact buyer psychology, today’s relatively good affordability conditions will continue to support slow market recovery.”
When it comes to mortgage rates, Graham stated that it’s unlikely variable mortgage rates will decrease in the near future.
It’s not all bad. She added that current variable rate pricing is still the best it’s been since 2022, with five-year terms as low as 3.45 per cent.
“Home prices, meanwhile, have yet to re-heat, and plenty of available inventory has made for buyer-friendly conditions in most Canadian markets,” said Graham. “While economic uncertainty continues to impact buyer psychology, today’s relatively good affordability conditions will continue to support slow market recovery.”
The Bank of Canada will drop its last interest rate update for 2025 on Wednesday, Dec. 10.
