By Erik Hertzberg
(Bloomberg) — Markets increasingly expect the Bank of Canada’s next move will be a rate hike next year, as the country’s unexpected labour market strength suggests further monetary easing may not be needed despite U.S. tariffs.
Traders in overnight swaps are now fully pricing a hike from the central bank by October 2026. Just a day earlier, markets were assigning some probability of Governor Tiff Macklem and his officials cutting borrowing costs over the next year.
The repricing followed a surprise 0.4 percentage-point drop in Canada’s unemployment rate in November, alongside stronger-than-anticipated job gains. Bonds sold off across the curve, with the yield on five-year benchmark government debt up 20 basis points intraday.
“Today’s figures do appear to confirm that the economy is recovering following the trade-induced weakness earlier in the year. As such, we continue to expect that the Bank of Canada’s rate cutting cycle has ended,” said Andrew Grantham, an economist with Canadian Imperial Bank of Commerce.
Officials had already signalled their easing cycle was nearing its end. The central bank cut interest rates by a quarter percentage point in October, but said rates were at “about the right level” if inflation and the economy unfold in line with their forecasts. Policymakers have also warned that the structural damage posed by the ongoing trade dispute with the U.S. limits their ability to support the economy, particularly if prices move higher from tariffs.
At the same time, officials have said they’re prepared to respond if the outlook for inflation and growth change.
Canadians themselves are more torn over whether the Bank of Canada has finished cutting.
A poll by Nanos Research Group for Bloomberg News shows 44% of respondents expect the policy rate to remain at 2.25% over the next year, while 31% see at least one more cut. About 9% anticipate a hike, and nearly one-fifth are unsure.
The poll results may have implications for how monetary policy transmits through the economy. Households expecting additional easing may hold off on major purchases until borrowing costs move lower, limiting consumption.
Expectations differ across demographics too. Nearly half of women surveyed expect rates to hold, double the share who foresee further easing. Among Canadians 55 and older, more than half believe rates will stay unchanged — again, roughly twice the proportion expecting cuts.
The survey of 1,009 Canadians was taken between Nov. 29 and Dec. 2, and is accurate plus or minus 3.1 percentage points 19 times out of 20.
The Bank of Canada next sets interest rates Dec. 10. Markets and economists surveyed by Bloomberg are expecting the central bank to hold rates steady at that meeting.
–With assistance from Mario Baker Ramirez.
©2025 Bloomberg L.P.
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Last modified: December 5, 2025
