Will the Bank of Canada Cut Rates at the December 2025 Meeting?

As the year draws to a close, one question is dominating financial headlines:
Will the Bank of Canada cut interest rates at its December 2025 meeting?

After a multi-year tightening cycle followed by gradual rate cuts through 2024–2025, homeowners, buyers, and investors are eagerly watching for signs of further relief. With inflation stabilizing, unemployment rising modestly, and housing affordability still strained, December’s policy decision may set the tone for 2026.

Here’s what the data suggests — and what Canadians should expect.

1. Inflation Is Within Target — But Still Mixed

By late 2025, inflation is projected to remain within the Bank of Canada’s 1%–3% target range, with core measures trending steadily downward.

What’s cooling:

• Goods inflation

• Transportation costs

• Energy volatility

What remains sticky:

• Shelter inflation

• Service-sector wages

• Insurance and local taxes

Because inflation is close but not perfect, it gives the Bank flexibility — but not a guaranteed green light.

2. Economic Growth Has Slowed Considerably

Canada’s economy continues to soften heading into winter 2025:

• Slower GDP growth

• Rising jobless claims

• Declines in consumer spending

• Business investment flattening

The Bank typically cuts rates when economic momentum weakens, and current data suggests the slowdown is becoming more pronounced.

This increases the likelihood of a December 2025 rate cut.

3. What Bond Markets Are Predicting

Bond yields — a key predictor of rate movements — have been trending downward throughout fall 2025.

Market pricing indicates:

• High probability of at least one more cut in late 2025

• Growing confidence in easier monetary policy for 2026

• Investor expectation of lower borrowing costs ahead

Bond market sentiment often leads central bank decisions, and current trends are signalling softening.

4. Will the Bank of Canada Cut in December 2025?

Base Case Forecast (Most Likely):

A modest 0.25% rate cut.

Why?

• Inflation is within range

• Economic conditions favour easing

• Housing affordability pressures remain high

• Wage growth is slowing

• Global central banks are also easing

Alternative Scenario (Less Likely):

A pause, if inflation data surprises to the upside in November.

Very Low Probability:

A rate hike, as current data does not support tightening.

5. What a December 2025 Rate Cut Would Mean for Canadians

Variable-Rate Borrowers

Immediate relief, with prime rate declining.
Payments could decrease by $12–$16 per month per $100,000 borrowed.

Fixed-Rate Borrowers

Fixed rates won’t drop overnight, but continued easing of bond yields may bring:

• Lower 1–5 year terms

• Better renewal opportunities

• Improved refinance conditions

Renewals in 2025–2026

More rate cuts = lower payment shock for homeowners renewing after tough years.

6. Housing Market Impact Heading Into 2026

A December cut could:

• Boost early-2026 buyer activity

• Improve affordability slightly

• Increase investor confidence

• Strengthen refinance and HELOC demand

However, Canada’s supply shortage may continue to push prices upward, even with lower borrowing costs.

7. Should Homeowners Act Before December?

Lock In Now If:

• You’re renewing within 90 days

• You prefer stability and predictable payments

• You believe rates may rise due to inflation surprises

Wait and Watch If:

• You’re comfortable with short-term volatility

• You’re considering variable rates

• You’re hoping for market-driven dips in fixed rates

Speaking with a broker before year-end ensures you take advantage of any sudden rate drops.

Final Thoughts

Will the Bank of Canada cut rates at its December 2025 meeting?
The odds look good.

With inflation stabilizing, economic conditions cooling, and global monetary policy easing, a year-end rate cut is increasingly likely — though not guaranteed. Homeowners and buyers should prepare for a more favourable borrowing environment heading into 2026.

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