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The Bank of Canada held its policy rate at 2.25% this week, a decision most had already been expecting. After four cuts over the past year, the question now isn’t what just happened, but what comes next?
For households trying to plan their budgets, the answer matters. This pause comes at a time when the economy has been surprisingly resilient, with stronger job growth and slightly firmer GDP data heading into year-end. Inflation has eased closer to the 2% target, but underlying measures are still sticky enough to keep the Bank cautious.
What this means for borrowers
Since the Bank didn’t make a move this week, lenders aren’t expected to adjust their prime rates. For most major banks, prime stays at 4.45%. Variable-rate and adjustable-rate borrowers won’t see any change in their payments, and lines of credit tied to prime stay where they are.
Fixed mortgage rates, however, are influenced more by the bond market, and those have been edging up. A recent run of stronger economic data pushed bond yields higher, reversing part of the rate relief borrowers saw earlier in the fall. That’s why many of the lowest five-year fixed rates have climbed back above 4%.
Are rate cuts officially over?
This is the question dominating market conversations right now.
Until recently, most people expected at least one more cut early next year. But over the past couple weeks, that narrative has shifted. Stronger job numbers and upward revisions to GDP have traders betting that the Bank’s easing cycle may already be finished. Some market forecasts are even pricing in a rate hike sometime in late 2026.
Economists are also split. Some say the Bank of Canada policy rate is close to the bottom end of where rates can comfortably sit without re-igniting inflation, especially if the economy keeps outperforming. Others think the Bank will stay on hold for a long stretch, letting the impact of earlier cuts work its way through households and businesses.
What borrowers should take away
The biggest shift is that the risks around variable rates are no longer one-directional. Over the past year, borrowers were mostly watching for cuts. Now the conversation is centred on stability, and on the possibility that the next move could eventually be up, not down.
For anyone renewing, shopping, or debating between fixed and variable:
- Variable borrowers should plan for today’s rates to stick around longer than expected, and be comfortable with the possibility they could start rising again in the not so distant future.
- Fixed borrowers will continue to see rates respond to economic data and bond markets, which have become more volatile again.
- Renewers may benefit from comparing multiple options, since lender pricing has been shifting week to week.
The Bank’s next rate announcement is scheduled for January 28, but for now, the main story is no longer the cut that didn’t come, it’s whether the Bank of Canada has already reached the end of its easing cycle.
If you’d like help figuring out what today’s rate pause means for your own mortgage path, a TMG broker is always a good place to start.
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