Bank of Canada Rate Cuts Are Likely Over: What a 2.25% Policy Rate Means for Mortgages, Housing and TSX Mid‑Cap Stocks

Published: December 5, 2025

Key Points

The Bank of Canada (BoC) is widely expected to hold its policy rate at 2.25% on December 10, after 275 basis points of cuts since the start of its easing cycle. ^[1]
A new Reuters poll of 33 economists suggests the BoC is done cutting rates until at least 2027, even as growth holds up and inflation sits comfortably in the 1–3% target band. ^[2]
Fresh labour data show unemployment dropping to 6.5% in November, the lowest in 16 months, sharply reducing the odds of further cuts in 2026. ^[3]
Daily Hive / Isabelle Docto (via VREG) and other housing analysts expect the BoC to “settle into a holding pattern” at 2.25%, with variable mortgage rates unlikely to fall much further even as affordability improves from 2022–23 peaks. ^[4]
A recent Motley Fool Canada column argues that lower and stable rates could be a tailwind for Canadian mid‑cap stocks, highlighting the iShares S&P/TSX Completion Index ETF (XMD) as a way to play mid- and small‑cap names that tend to benefit disproportionately from cheaper borrowing costs. ^[5]

1. Where Bank of Canada Rates Stand Now

The Bank of Canada’s key policy rate currently sits at 2.25%, after an October 29 cut of 25 basis points from 2.50%. ^[6]

That October move capped a powerful easing cycle totaling 275 basis points of cuts—“one of the most aggressive among G10 economies,” as Reuters puts it. ^[7]

In its October policy statement, the BoC stressed that:

The Canadian economy is still digesting the shock of U.S. tariffs and a sharp drop in export demand.
GDP is projected to grow only 1.2% in 2025, 1.1% in 2026 and 1.6% in 2027, pointing to a long, slow recovery. ^[8]
Headline inflation has hovered near 2%, while underlying measures cluster around 2.5%, indicating that price pressures are contained but not fully gone. ^[9]

Crucially, the Bank signalled in October that the current rate is “about the right level” to keep inflation near target while supporting an economy in transition and that future moves would be driven by incoming data. ^[10]

That puts this month’s December 10 announcement squarely in “fine‑tuning” territory rather than emergency mode.

2. A December Hold at 2.25% Is Now the Base Case

Reuters poll: unanimous call for a hold

According to a Reuters poll conducted December 2–5, all 33 economists surveyed expect the BoC to leave the overnight rate at 2.25% on December 10. A clear majority—18 of 29—think that rate will stay unchanged at least until 2027. ^[11]

Economists point to a surprisingly resilient macro backdrop:

Q3 GDP grew at an annualized 2.6%, beating expectations and easing fears of a recession. ^[12]
Inflation is now “firmly within” the 1–3% target range. ^[13]

BMO chief economist Douglas Porter notes that the Bank has “all but signalled” it is done cutting and warns it’s “far too early for rate‑hike talk” given ongoing trade uncertainty. ^[14]

Labour market surprise strengthens the case for a pause

The latest job numbers, released today, pushed markets further toward a long pause:

Unemployment fell to 6.5% in November, a 16‑month low.
Canada added 53,600 jobs, driven largely by part‑time roles in health care and social assistance.
The country has now added 181,000 jobs since September. ^[15]

Analysts had actually forecast a small job loss and higher unemployment, so this upside surprise matters. Reuters notes that money markets now see about a 93% chance the BoC holds next week, and Porter argues that the drop in joblessness “seriously reduces the odds of any further cuts in 2026.” ^[16]

Market pricing and rate‑path expectations

Rate‑sensitive modelling by mortgage platform WOWA shows a similar story: as of late November, futures curves and BoC guidance together point to a mostly flat policy path through 2026, with 2.25% essentially treated as the new normal—at least for now. ^[17]

Ontario Housing Market’s roundup of expert views ahead of the December 10 decision reaches the same conclusion: a hold at 2.25% is the dominant scenario, supported by strong GDP, softening but still‑present inflation, and a mixed labour picture. ^[18]

3. Not Everyone Thinks the Cutting Cycle Is Over

While consensus now leans heavily toward “cutting is done,” some analysts still see room for more easing in 2026.

Morningstar: one more leg down to 1.75%?

Economists cited by Morningstar—and summarized by Ontario Housing Market—argue that if domestic demand stays weak, the BoC may need to nudge rates lower again next year, potentially toward 1.75%. ^[19]

Their reasoning:

Sluggish business investment
Softer consumer spending beneath the headline GDP prints
Prolonged global uncertainty, particularly around trade

In other words, if today’s resilience fades and the economy sags through 2026, the Bank could dust off the rate‑cut playbook again.

Other forecasters: the floor is already in

On the other side, mortgage‑rate forecasters at Nesto and rate strategists at Perch lean toward the view that 2.25% is effectively the floor, absent a significant downturn. ^[20]

They highlight:

The BoC’s repeated insistence that inflation must be sustainably near 2% before it even thinks about a more aggressive easing path. ^[21]
Political and financial stability concerns if rates are kept ultra‑low for too long.
The early signs that housing and equity markets are already responding to cheaper money. ^[22]

Even these more dovish voices generally agree: rate hikes are unlikely in 2025 or early 2026, but massive additional cuts are not base‑case either. ^[23]

4. Inside the December 10 Decision: What Analysts Expect

An article by Isabelle Docto for Daily Hive—republished in full by Vancouver Real Estate Group (VREG)—frames the December 10 announcement as the “final interest rate update of 2025” and underscores just how consequential this “boring” hold could be for borrowers. ^[24]

A likely “holding pattern” at 2.25%

Ratehub.ca mortgage expert Penelope Graham tells Daily Hive / VREG she expects the BoC to “settle into a holding pattern” at the current rate:

She notes inflation around 2.5%, still above the formal 2% target but easing as shelter and goods costs cool and Canadian counter‑tariffs are removed. ^[25]
That mix—moderating but not vanishing inflation—makes further rate cuts difficult to justify, but also argues against rushing into hikes.

In her view, the data point clearly toward a December hold and then a period of cautious watching.

Mortgages: variable rates may have bottomed (for now)

Graham also delves into mortgage‑market implications:

Variable‑rate mortgages are unlikely to drop meaningfully in the near term if the BoC is done cutting.
However, today’s variable pricing is still the most attractive it has been since 2022, with some five‑year variable offers as low as 3.45%, according to her comments. ^[26]
Fixed mortgage rates have already priced in much of the easing cycle, leaving limited room for further declines without another major shift in bond yields. ^[27]

The takeaway for borrowers: the ultra‑fast rate‑cut phase is probably behind us, but we are still in a comparatively low‑rate environment by recent standards.

5. Housing Market Outlook: From Soft Patch to Slow Rebound

Prices: 3.2% drop this year, mild gains ahead

Despite the aggressive rate cuts, Canada’s housing market has struggled through 2025: average home prices are down roughly 3.2% so far this year, according to a Reuters poll of housing analysts. ^[28]

But that same survey sees the tide slowly turning:

+1.8% average price growth in 2026
+3.5% in 2027

Nine of 11 analysts surveyed expect affordability for first‑time buyers to improve over the next year, in part because lower mortgage rates are combining with more moderate price levels. ^[29]

RBC assistant chief economist Robert Hogue argues that the September and October cuts “further improved affordability for buyers,” lowering ownership costs at a time when valuations have eased. He expects pent‑up demand from the high‑rate era to gradually return as confidence improves. ^[30]

Daily Hive / VREG: buyer‑friendly, but not a frenzy

From a ground‑level perspective, Graham tells Daily Hive that:

Buyer demand has been quietly recovering for about six months, even if total sales remain below last year’s levels.
Home prices have not “re‑heated” yet, and inventory is plentiful, creating unusually buyer‑friendly conditions in many markets. ^[31]

Her conclusion: we’re likely heading into a slow, grinding recovery rather than a 2021‑style price spike—especially if policy rates simply sit at 2.25% rather than plunging much further.

Federal budget and housing supply

The Reuters poll also folds in the impact of Prime Minister Mark Carney’s first federal budget, which pledges C$280 billion over five years, including C$25 billion earmarked for housing. ^[32]

Most analysts in the survey see these measures as a step in the right direction but worry they are too modest to meaningfully close the supply gap in major cities. ^[33]

In short: cheaper money is helping demand, but structural supply constraints mean affordability gains could be capped unless Ottawa and the provinces deliver more concrete housing builds.

6. What a Long Rate Pause Means for TSX Mid‑Cap Stocks

Lower and more stable rates don’t just shape mortgages—they also reshape the opportunity set for Canadian equities, especially mid‑cap names that sit between sleepy blue‑chips and volatile small‑caps.

Motley Fool: mid‑caps and the TSX Completion Index

A December 3 column by Joey Frenette at The Motley Fool Canada, syndicated via Yahoo Finance, argues that the BoC’s easing cycle has opened a compelling window in Canadian mid‑caps. ^[34]

Key themes from his piece (as summarized by Yahoo’s preview and related coverage):

Mid‑caps are typically more sensitive to interest rates than mega‑caps because they rely more on external financing to fund growth.
With the BoC having cut aggressively and now expected to hold, mid‑caps could enjoy a sweet spot of lower borrowing costs without the uncertainty of ongoing cuts that signal economic stress. ^[35]
The S&P/TSX Completion Index, which excludes the big‑name TSX 60 giants and tilts heavily toward mid‑ and small‑cap stocks, looks particularly attractive in this environment. ^[36]

Frenette highlights the iShares S&P/TSX Completion Index ETF (TSX: XMD) as a simple way to gain exposure to this slice of the market, calling it “a great ETF for mid‑cap investors looking to play lower rates.” ^[37]

XMD: a one‑ticker mid‑cap play

According to BlackRock and Cbonds:

XMD seeks to replicate the S&P/TSX Completion Index, providing targeted exposure to mid‑ and small‑cap Canadian equities. ^[38]
As of December 4, 2025, XMD’s NAV is $52.46, with a year‑to‑date total return of about 38%, reflecting the strong rebound in smaller Canadian names as rates fell. ^[39]
Top holdings include a mix of industrial, financial, resource, and tech‑adjacent names such as Celestica, Fairfax Financial (sub‑voting shares), Pan American Silver, RB Global and Alamos Gold—companies that often see their valuations expand when discount rates fall and growth prospects brighten. ^[40]

In other words, if the BoC is indeed done cutting but nowhere close to hiking, the current level of the overnight rate may be a Goldilocks zone for mid‑caps:

Debt is cheaper than it was in 2023–24.
Economic data are no longer screaming “recession.”
A clearer rate path reduces uncertainty, which tends to support risk assets. ^[41]

Important caveat

As always, mid‑caps carry higher volatility and sector concentration risks than broad large‑cap indices. Investors should consider:

Their risk tolerance
Portfolio diversification
Time horizon

before leaning too heavily into rate‑sensitive equities. This article is for information only and not personalized investment advice.

7. What This All Means for Canadians Right Now

Putting the pieces together, here’s how Canada’s emerging “post‑cut” world looks as of December 5, 2025:

For homeowners and homebuyers

Variable‑rate mortgages: Likely to stabilize close to current levels; any additional relief would probably require a deeper‑than‑expected slowdown. ^[42]
Fixed‑rate mortgages: May edge down or up modestly depending on bond yields, but the big move from peak rates is already behind us. ^[43]
Timing: The next few quarters could represent a window of relative affordability before modest home‑price growth and possible longer‑term rate normalization erode some of today’s buyer advantage. ^[44]

For renters and household budgets

A steady 2.25% policy rate helps anchor inflation expectations, offering some relief on everyday costs even if housing remains expensive. ^[45]
A strong labour market with rising employment improves income stability, though wage growth around 4% still has to fight past years of high price increases. ^[46]

For investors

GICs and savings accounts: With the BoC expected to sit tight for some time, short‑term yields may plateau, making it harder to get higher rates just by waiting. ^[47]
Equities: Rate‑sensitive sectors—housing‑related stocks, financials, select industrials and mid‑caps—could continue to benefit from the combination of lower rates and improving growth, provided the trade backdrop doesn’t deteriorate sharply. ^[48]

8. Risks to Watch in 2026

Even if the BoC is done cutting, the story isn’t over. Key risks that could still shift the outlook include:

Trade escalation with the U.S.
The BoC’s own October report warns that an unpredictable U.S. trade policy remains a major source of uncertainty, constraining both growth and the Bank’s room to manoeuvre. ^[49]
Global slowdown or financial stress
A sharper‑than‑expected global slowdown or market shock could force the BoC back to the cutting table sooner than markets anticipate.
Re‑acceleration of inflation
If tariffs, commodity prices or wage pressures push inflation notably above 3% again, talk could shift from “how long do we hold?” to “how soon do we hike?”—a scenario most analysts currently see as unlikely before 2027. ^[50]

Bottom Line

As of December 5, 2025, the emerging consensus is clear:

The Bank of Canada’s rate‑cutting cycle is effectively over, at least for the next couple of years. ^[51]
The policy rate at 2.25% is poised to become the anchor for mortgage rates, housing decisions and investment strategies throughout 2026.
For households, that means more stability after two years of volatility; for investors, it means a renewed focus on rate‑sensitive sectors, particularly Canadian mid‑caps that stand to benefit from lower financing costs and an improving growth backdrop. ^[52]

The BoC’s December 10 decision is unlikely to deliver fireworks—but in a world craving stability, a boring hold may be exactly what Canada needs.