Bank of Canada Expected to Hold Rates Until 2027
The Bank of Canada (BoC) is widely expected to keep its benchmark interest rate unchanged at 2.25% at its 10 December announcement, with a growing consensus that the central bank has reached the end of its easing cycle. According to a Reuters poll conducted between 2–5 December, all 33 surveyed economists forecast a hold next week, and a majority expect rates to remain steady through at least 2027.
The outlook reflects a delicate balance: inflation is now firmly within the BoC’s 1–3% target range, economic growth remains comparatively resilient, and labour market conditions—though softening—remain stronger than expected. At the same time, new federal immigration policies could reshape economic capacity and complicate the timing of any future rate moves.
Policy Outlook: Easing Cycle Paused, Not Reversed
Rates at a “neutral” level
Following 2.75% of cuts, a more aggressive easing cycle than any other G7 central bank, the BoC signalled in October that additional reductions were unlikely. Economists now see little justification for further stimulus, particularly as recent data point to durable underlying strength:
The economy grew 2.6% last quarter, defying U.S. tariff headwinds.
October’s labour report showed 67,000 job gains, almost entirely in the private sector.
Wage growth ticked up to 3.5%, complicating any argument for rapid easing.
Douglas Porter, chief economist at BMO, noted that talk of rate hikes remains premature but added: “With the Bank all but signalling that it is done cutting, thoughts are now turning to when it may go in the other direction.”
Structural Forces: Immigration Policy Redefining Growth Risks
The federal government's new immigration strategy, led by Prime Minister Mark Carney, introduces a powerful structural shift. Temporary residents are set to fall by 43% between 2025 and 2026, bringing their population share below 5% by 2027.
Capital Economics projects that population growth could slow to near zero by 2026–27, with significant macroeconomic implications:
Lower potential GDP growth, reducing long-run demand.
Shrinking labour force, pushing unemployment down despite weak job creation.
Persistent wage pressure, heightening inflation risks even in a slower economy.
Such conditions could constrain the BoC’s ability to resume rate cuts, especially if labour shortages intensify. In practical terms, the new immigration policy may anchor the policy rate near current levels well into 2027.
Housing Market: A Rebound Might Take Shape
Improving affordability and pent-up demand
Despite the sharp decline in mortgage rates this year, housing activity underperformed for much of 2025. National home prices fell 3.2% year-to-date.
But this trend appears to be turning:
Analysts forecast home price increases of 1.8% in 2026 and 3.5% in 2027.
Nine of 11 housing economists say affordability for first-time buyers will improve over the next year.
Rate cuts in September and October have already lowered ownership costs.
RBC’s Robert Hogue notes that recent reductions “will likely draw more buyers back to the market, unlocking pent-up demand accumulated during the period of elevated borrowing costs.”
New construction supply constraints remain acute
The 2025 federal budget allocates $25 billion to housing over five years, part of a broader C$280 billion investment plan. Analysts say the direction is positive but insufficient to improve new-build economics in major cities materially.
Renewal wave set to add resale supply
A parallel supply source may emerge from Canada’s mortgage renewal cycle. Roughly 1.8 million mortgages are set to renew over the next 12 months, with the volume peaking in mid-2026 and a smaller aftershock in 2027. Many of these borrowers financed their homes during the ultra-low-rate period of 2020–2021, when five-year fixed and variable rates sat well below 2%. Although the Bank of Canada’s earlier cuts have mitigated the payment shock, pulling most renewal rates into the 4% range, about 40% of borrowers are expected to see monthly payments rise materially, with nearly one in every four mortgage holders facing increases of more than 20%.
Analysts caution that some highly leveraged owners and property investors may opt to list rather than absorb higher payments or extend amortisations. As a result, the renewal cycle could release a modest but meaningful wave of resale supply into the market through 2026 and 2027, easing price pressures even as broader demand stabilises.
Mortgage Outlook: Relief Limited, Stability Dominant
Short-term: little movement expected
With the policy rate effectively at its neutral level, mortgage strategists warn borrowers not to expect further declines:
Fixed mortgage rates have already priced in the BoC’s earlier cuts and are unlikely to fall meaningfully further.
Variable rates will remain tied to the overnight rate, which most economists expect to hold steady for at least 12–18 months.
Medium-term: structural forces at play
Reduced immigration may cool rental and ownership demand at the margin, but the primary mortgage driver will remain the BoC’s long pause.
If population growth slows more sharply than expected, the resulting disinflationary forces could allow for modest cuts in 2026, but that scenario is not the base case. If labour markets tighten due to a shrinking workforce, rate stability could extend even longer.
The Bottom Line
How likely is a rate cut in December? It is highly unlikely.
What is the next anticipated move? No changes are expected until mid-2026 at the earliest, with most economists predicting no adjustments until 2027.
What about the housing market? It is set for a gradual rebound as affordability improves and demand returns.
Regarding mortgages, we anticipate limited downside. Borrowers should plan for sustained rate stability and even the polibility of rate increases.
Key risks to consider include:
A slowdown in Canada’s immigration, which could tighten the labor market and delay any future easing of rates.
An influx of new listings from homeowners unable to afford their mortgages could shift certain markets in favor of buyers, putting downward pressure on prices.
In summary, the Bank of Canada appears to be firmly on hold, balancing a resilient economy, evolving demographic pressures, and a housing market that is poised to turn a corner.
