Canada’s borrowing costs freeze again — how the BoC’s December rate hold hits your wallet

The Bank of Canada held its overnight lending rate at 2.25% on Dec. 10, 2025, signalling a continued wait-and-see approach as the economy navigates weak growth and lingering inflation pressures. According to the Bank’s December statement, the policy stance remains restrictive enough, and additional easing was not considered necessary as we close out the year.

This latest rate pause by the Bank of Canada (BoC) follows after two rate drops — in September and October 2025 — preceded by three consecutive rate holds that began in March 2025.

While earlier cuts in September and October reduced borrowing costs, the December hold confirms that the central bank is prioritizing stability and monitoring the effects of past rate movements before making further adjustments.

Why the December BoC rate hold matters

The December hold keeps the overnight rate at 2.25%, which means Canada’s prime rate remains at 4.45% — unchanged from the reductions earlier in the fall. As a result, borrowing costs stay stable heading into the new year, specifically:

• Variable-rate mortgages: No further payment relief beyond the fall cuts.
• HELOCs: Rates remain tied to prime at current levels (e.g., prime +1% = 5.45%).
• Variable-rate loans and credit cards: No new decreases.

The hold provides predictability for borrowers but no additional cost relief beyond what occurred earlier in 2025.

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BoC stance heading into 2026

The December 2025 announcement confirms the Bank of Canada is maintaining current policy, emphasizing that previous reductions are still working as the latest economic data shows. However, the Bank is taking a risk, while inflation may be cooling, economic growth remains weak. That means the BoC must balance risks between:

• easing too quickly and re-accelerating prices
• holding too long and slowing the economy further

Given these risks, the recent rate hold suggests the BoC is not committing to additional easing at this stage but remains flexible depending on inflation and labour-market trends.

How this impacts Canadians

The December 2025 BoC rate hold affects borrowers as the pause on rate reductions means no reducation on the current cost of debt.

The Bank reaffirmed in December that future rate changes will depend on whether inflation remains within the 1% to 3% range and whether the broader economy continues to show signs of slowing. The Bank stated it will maintain a “data-dependent, meeting-by-meeting” approach going into 2026 (1). It's clear from BoC’s December commentary that the central bank analyts see no further easing as necessary unless economic conditions deteriorate sharply. The central bank noted that wage growth, geopolitical shocks, and global supply chain issues remain risks that could prevent further cuts.

How the BOC's target rate affects the prime rate in Canada?

When the Bank of Canada changes its target rate — or chooses to hold it steady — this sends a signal to banks and lenders across Canada about where borrowing costs might head next. That's because Canada’s prime rate — the benchmark rate banks use to set borrowing costs — is directly influenced by the BoC’s policy rate. When the BoC lowers the overnight rate, banks generally cut their prime rates by the same amount. The result: Borrowing becomes cheaper across a wide range of financial products and this helps stimulate consumers to spend and businesses to borrow and invest.

On the other hand, raising the rate makes borrowing more expensive and can slow economic activity. By holding the rate steady, the Bank indicates a wait-and-see approach, often reflecting uncertainty or a desire to assess the impact of previous rate moves before making further changes.

What does this mean for Canadian borrowers? It means Canadians with variable-rate mortgages, home equity lines of credit (HELOCs), variable auto loans, and certain credit cards will soon see interest charges fall by 0.25%. For example, a HELOC priced at “prime + 1%” will now cost 5.45%, down from 5.70%.

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Who sets the Canadian prime rate?

While each bank sets its own prime rate, the big five banks — Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) — usually have the same number.

That’s because the prime rate is heavily influenced by the BoC’s “policy interest rate.” It’s also known as the “target for the overnight rate,” because that’s what major banks charge each other for one-day loans.

When the BoC raises the overnight rate, it becomes more expensive for banks to borrow money. So they raise their respective prime rates to cover the added costs by pulling in higher interest from you.

When the BoC drops the overnight rate, banks usually lower their prime rates by the same amount — but there are some notable exceptions, as in 2015.

Canada prime rate history

Why does the prime rate go up and down?

The BoC is the nation’s central bank, and its mandate is to “promote the economic and financial welfare of Canada.” To do so, it modifies its targets for the overnight rate in line with the economy's performance and inflation forecasts.

If the economy is booming, the BoC might raise the target for its benchmark interest rate to pull back on people’s spending and keep prices from inflating to astronomical heights. The top banks will likely raise their prime lending rate in the weeks that follow.

When the economy is weakening or inflation dribbles to undesirable lows, the BoC will lower its overnight rate. Exceptional circumstances like the coronavirus pandemic can lead to emergency rate cuts, too.

"The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices. The pandemic-driven contraction has prompted decisive [action] to minimize any permanent damage to the structure of the economy," the Bank of Canada said in a news release in March 2020.

That was when it slashed the overnight rate to an all-time low of 0.25%, a level last reached during the 2008 financial crisis.

In January 2022, Bank of Canada Governor, Tiff Macklem, announced to reporters that "interest rates will need to increase to control inflation. Canadians should expect a rising path for interest rates."

And they did. The central bank raised interest rates eight times in 12 months, only pausing the hike in March 2023. Rates went up twice more since then but were paused for months, until July of last year, when rates dropped 25 basis points. The July announcement is the third announcement in a row the Bank has held rates, suggesting that, while inflation has cooled, market uncertainty remains.

How the Canadian prime rate impacts you

Home equity lines of credit

If you have access to a HELOC, you'll feel the movements in the prime rate most closely.

Rates on those products change in sync with the prime. The adjustable rate on a HELOC might be advertised as "prime plus 1%" or "prime plus one," for example.

The rate on this hypothetical HELOC would have decreased from 5.70% to 5.45%, a few days to a few weeks after the BoC target rate dropped to 2.25%. Based on October's announcement, your payments should decrease.

Credit cards

Similar to HELOCs, some lower-interest or variable APR credit cards might have an interest rate described as “prime plus 4.50% to 12.75%” or “prime plus 9.99%.”

Auto loans

Variable-rate auto loans shift in line with the prime, and the rate you’ll get on a new fixed-rate loan will change, too.

How much depends on the institution, so it's important to check with your lender when you hear about a prime rate hike or cut.

Mortgages

The two most common types of mortgages in Canada, fixed-rate mortgages and variable-rate mortgages, interact with the prime in different ways.

An active fixed-rate mortgage won’t be affected — that’s what makes them fixed — but the rates for new borrowers usually go higher or lower in step with the prime.

By contrast, the interest rate you pay with variable-rate mortgages tangos directly with the prime rate over the course of the loan. With a five-year variable mortgage, you could be quoted for a rate that looks like "prime -0.45%" — the equivalent of 4.0% (with prime at 4.45% minus 0.45%).

With interest rates this low, Canadians could be motivated to lock-in lower debt costs — finding mortgages, auto loans and other debt products with lower borrowing costs, and help reduce the strain on monthly budgets.

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Bank of Canada (1)