Canada Raises Interest Rates for the Third Time in a Row to Curb Markets
London, UK – December 6, 2025
In a widely anticipated but potentially significant move, the Bank of Canada announced a third consecutive increase in its key interest rates this year.
This decisive action is part of a tight and focused strategy aimed at curbing inflation, which continues to pose a threat to purchasing power and overall economic growth in the country.
Although recent data has shown a slight slowdown in price increases, the Bank indicated that underlying pressures remain strong, justifying the continuation of this tight monetary policy.
This move has triggered widespread reactions in global financial markets due to its potential impact on international economic flows.
Headline Points
• Bold Decision:
Raising the key interest rate to its highest level in two decades underscores the Bank of Canada’s commitment to combating inflation.
• Target:
Achieving the inflation target of 2% by the end of next year, according to the Bank Governor.
• Immediate Impacts:
Increased borrowing costs for consumers and businesses, putting further pressure on the already heavily indebted housing market.
Potential Risks:
Economic experts warn that successive rate hikes could push the Canadian economy into recession in the near future.
Decision Details and Economic Justifications
The Bank of Canada announced a 50-basis-point (0.50%) interest rate increase, bringing the overnight lending rate to a level not seen in the Canadian economy for a long time.
The Bank of Canada Governor justified the decision by citing the continued strength of the Canadian labor market, which remains unexpectedly robust, and the continued rise in wages, which is fueling the inflationary spiral.
The Bank of Canada emphasized that recent increases in energy and food prices, which are global drivers of inflation, require a strong domestic response to ensure that inflationary expectations do not become entrenched among consumers and businesses.
If people believe that prices will continue to rise rapidly, they will demand higher wages, creating a vicious cycle that is difficult to break. The monetary policy objective is to cool economic demand sufficiently to restore the balance of supply and demand to normal.
Implications of the Decision for Canadian Citizens and Markets
The most obvious impact of the interest rate hike will be on holders of variable-rate mortgages, whose monthly payments will see an immediate increase.
This exacerbates the pressure on the Canadian housing market, which is already known for high prices and high levels of home debt. This tightening is expected to lead to a sharp slowdown in property sales and a price correction.
Businesses are also facing increasing pressure, as new projects become more expensive to finance. This could lead to a slowdown in hiring or even layoffs in some interest-rate-sensitive sectors, increasing the likelihood of an economic slowdown expected in 2026.
On the currency front, the interest rate hike has temporarily strengthened the Canadian dollar, making it more attractive to investors seeking higher returns. However, this increase could negatively impact Canadian exporters, as their goods become more expensive in global markets.
#Global Comparison and the Political Stance: Monetary tightening is not unique to Canada;
Most of the world’s major central banks, including the US Federal Reserve and the European Central Bank, are pursuing similar strategies to combat inflation. This tacit coordination demonstrates that the inflationary challenge is a global crisis requiring strong responses.
In Canada, this decision puts the central bank in a difficult position with the government, as citizens are demanding financial support to mitigate the impact of the rising cost of living.
The Minister of Finance has confirmed that the government will adapt its fiscal policies to support the central bank’s efforts, focusing on targeted support for the most vulnerable groups without fueling further inflationary pressures.
The coming weeks and months will be crucial in monitoring whether Canada’s successive interest rate hikes will finally succeed in curbing inflation without causing significant damage to the Canadian economy.
