The Bank of Canada has kept its main interest rate steady at 2.25%. This decision comes as the Canadian economy proves to be more robust than expected, according to updated growth figures from Statistics Canada. Despite US tariffs, inflation is manageable, and GDP is predicted to grow steadily by 2026, with inflation hovering around the 2% target. A temporary price rise might occur due to a previous tax holiday, but the federal budget is not set to increase inflation significantly. Governor Tiff Macklem stated that the current interest rate is well-suited to support the economy. Future decisions will be based on new economic data, acknowledging the difficulties in gauging economic activity. Senior Deputy Governor Carolyn Rogers highlighted an improved balance in the housing market, and no sudden spikes in house prices are expected. The Bank of Canada employs various tools, like changing interest rates, to steer the economy. Its primary aim is to keep inflation between 1% and 3%. The strength of the Canadian dollar (CAD) is affected by interest rates; higher rates can make the currency stronger. The bank uses Quantitative Easing (QE) and Quantitative Tightening (QT) to aid economic recovery and stabilize prices. Typically, QE weakens the CAD, while QT tends to strengthen it. With the Bank of Canada maintaining its rate at 2.25%, there seems to be little reason for a rate increase soon. This indicates that short-term interest rate fluctuations are likely to remain low. Traders might explore strategies that take advantage of a stable or slightly declining yield curve, such as selling call options on Bankers’ Acceptance futures. The Bank’s cautious approach is backed by recent inflation data from November 2025, which showed a yearly Consumer Price Index (CPI) rate of 2.1%. This is a significant change from the high inflation experienced in 2022 and 2023. Under these controlled conditions, the Bank sees no immediate need to tighten its policy. For currency traders, the key point is the growing difference in policy compared to the United States. While Canada holds steady, U.S. inflation has increased to 2.8%, leading to expectations of a Federal Reserve rate hike in early 2026. This suggests a weakened Canadian dollar, making it favorable to buy USD/CAD call options. The Canadian economy is showing no signs of overheating that would require immediate action from the Bank. The latest jobs report for November 2025 noted only 15,000 new jobs, which fell short of expectations. This indicates there is still some slack in the economy, giving the Bank room to be patient. Additionally, the housing market is no longer a source of inflation, easing the need for the aggressive rate hikes seen in 2022. National home prices have stabilized, with the Canadian Real Estate Association reporting a modest 1.5% increase year-over-year last month. This stability allows the Bank of Canada to comfortably maintain its current policy in the weeks ahead.

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