BoC to pause rate cuts in December, says RBC
The Bank of Canada (BoC) appeared set to keep its overnight rate unchanged in December, with RBC Economics pointing to persistent consumer spending and a stabilizing labour market as key reasons for the central bank’s pause.
“Sticky underlying inflation due to resilient domestic demand is why we think the Bank of Canada will have a hard time justifying cutting the overnight rate from 2.25% to outright stimulative levels,” Claire Fan, senior economist at RBC, said.
Canadian household spending has remained robust despite a softer labour market and slower population growth.
“Household consumption volume grew an average annualized 2.5% rate in Q1 and Q2, down from the 4.6% pace over the second half of 2024 but still historically strong,” Fan said.
Notably, per-capita spending accelerated by 2.4% year-over-year in Q2 2025, the fastest pace in three years, even as the federal government reduced new resident arrivals.
Mortgage renewal pressures, a major headwind for households in recent years, have somewhat eased.
“The size of the overall mortgage cliff has been effectively reduced by BoC rate cuts since 2024,” Fan noted.
Twenty-four percent of outstanding mortgages with shorter durations could see payment decreases by the end of next year, according to Bank of Canada estimates.
Labour market stabilizes as inflation risks linger
Early data pointed to stabilization in Canada’s broader labour markets, with manufacturing employment rising in September and October and job openings improving.
“The data is consistent with our own base case projections that the BoC will not cut interest rates further,” Nathan Janzen, assistant chief economist at RBC, previously said.
The bank expects the unemployment rate to gradually fall from a recent peak of 7.1%. However, the bank warned that “resilient household consumption is a key tailwind, limiting the BoC’s capacity to cut interest rates to stimulative levels.”
Looking ahead, RBC projected that the US Federal Reserve would gradually lower its target range to 3.25%–3.5% by mid-2026, while the BoC would maintain its overnight rate at 2.25% through the end of 2026.
Canadian budget and US shutdown shape economic forecasts
RBC’s report flagged the federal government’s “mammoth” fall budget, which is set to lift deficit-to-GDP figures but is not expected to alter near-term growth forecasts.
“Most of the increases were well telegraphed ahead of the release and did not add significantly to near-term growth forecast,” Fan explained.
The bank’s forecast already included a 0.4 percentage point boost to real GDP growth over 2025 and 2026 from anticipated fiscal measures.
Meanwhile, the record-length US government shutdown prompted a downward revision to Q4 GDP growth south of the border, though RBC expects the drag to reverse in early 2026 as furloughed workers return.
Source CMP
By Liezel Once
