As 2025 concludes—a year defined by trade volatility and economic opacity—the Bank of Canada is poised to shift its monetary stance from active intervention to prudent observation. Markets have priced in a near-certain probability that the central bank will maintain the overnight rate at 2.25% during its final meeting of the year. This consensus is underpinned by a resurgence in macroeconomic fundamentals, notably a third-quarter GDP annualized growth rate of 2.6% and sustained labor market resilience, effectively signaling a pause in the easing cycle that delivered a cumulative 100-basis-point reduction earlier this year.
This pivot to the sidelines reflects a necessary stabilization after a year of reactive policy adjustments driven by external trade risks. For much of 2025, decision-makers navigated without standard core forecasts, relying instead on scenario planning to manage the dual threats of stagnation and tariff-induced inflation. With the immediate threat of recession receding and the "stop-and-go" cadence of rate cuts stabilizing, the urgency for further monetary stimulus has dissipated.
Looking ahead to 2026, the economic narrative is transitioning from monetary rescue to fiscal stewardship. With federal budget measures expected to shoulder the burden of growth, the Bank of Canada gains the latitude to adopt a holding pattern, potentially maintaining current levels throughout the coming year. For stakeholders, this signals a new phase of predictability: the volatility of defensive rate cuts is ending, replaced by a period of stability as the market internalizes the interplay between fiscal support and natural recovery mechanisms.