The interest rate decision to hold steady at 6.50% marks a pause after a series of cuts totaling 0.75 percentage points since October 2024. This reflects a cautious stance amid moderating inflation and mixed growth signals. The rate remains well below the 7.25% peak recorded a year ago but above pre-pandemic levels, signaling a still-tight monetary policy environment.

Drivers this month

• Inflation easing to 3.80% YoY from 4.10% last month, driven by lower energy prices.
• Labor market remains tight with unemployment steady at 4.20%, supporting wage growth.
• Consumer spending growth slowed to 0.30% MoM, reflecting cautious sentiment.

Policy pulse

The 6.50% rate sits above the central bank’s 2% inflation target but reflects a calibrated approach to avoid stalling growth. The pause suggests the bank is monitoring lagged effects of previous hikes while awaiting clearer inflation trajectory.

Market lens

Immediate reaction: The North American dollar (NAD) strengthened 0.15% against the USD within the first hour, while 2-year government bond yields edged down 3 basis points, signaling market relief at the hold decision.

Core macroeconomic indicators underpin the central bank’s decision. Inflation has moderated from a 12-month high of 5.20% in mid-2024 to 3.80% in November 2025. GDP growth slowed to an annualized 1.60% in Q3 2025, down from 2.30% in Q2. The labor market remains resilient, with wage growth steady at 4.50% YoY, supporting consumer demand despite tighter credit conditions.

Monetary policy & financial conditions

Monetary policy remains restrictive with the policy rate at 6.50%, down from 7.25% a year ago. Financial conditions have eased slightly, with credit spreads narrowing by 15 basis points since September 2025. The yield curve remains inverted between 2- and 10-year maturities, signaling recession concerns.

Fiscal policy & government budget

Fiscal policy has been moderately expansionary, with a 2025 budget deficit forecast at 3.20% of GDP, slightly wider than 2.80% in 2024. Increased infrastructure spending and social programs aim to support growth but raise medium-term debt sustainability questions.

External shocks & geopolitical risks

Global trade tensions and energy price volatility remain key risks. Recent geopolitical frictions in Eastern Europe have pressured commodity markets, though North America’s diversified energy mix has mitigated direct inflation impacts.

The yield curve inversion remains a critical signal, with the 2-year yield at 6.30% and the 10-year at 5.80%, indicating market expectations of slower growth or recession within 12-18 months. Consumer confidence indices have softened slightly, reflecting uncertainty despite stable employment.

Market lens

Immediate reaction: The NAD/USD currency pair rallied modestly post-announcement, while short-term bond yields declined, reflecting market approval of the steady policy and reduced volatility expectations.

Looking ahead, the central bank faces a complex environment. Inflation is trending down but remains above target. Growth is slowing, and geopolitical risks persist. Our scenarios for the next six months are:

• Bullish (30% probability): Inflation falls below 3%, allowing a rate cut to 6.00% by Q2 2026, supporting a moderate growth rebound.
• Base (50% probability): Inflation stabilizes near 3.50%, rates hold at 6.50%, with gradual easing of financial conditions and steady growth.
• Bearish (20% probability): Inflation surprises on the upside due to energy shocks, prompting a rate hike back to 6.75%, risking recessionary pressures.

Structural & long-run trends

Long-term trends such as demographic shifts, technological adoption, and climate policy will shape monetary policy’s effectiveness. The central bank’s forward guidance emphasizes flexibility amid these evolving structural factors.

Financial markets & sentiment

Market sentiment remains cautious but stable. Equity indices have shown moderate gains, while volatility indices remain elevated compared to 2023 averages. Credit markets reflect a mild risk-off tone, consistent with the cautious monetary stance.

The December 2025 interest rate decision to hold at 6.50% reflects a central bank balancing inflation control with growth risks amid uncertain global conditions. The pause after a series of cuts signals a wait-and-see approach, with markets responding positively to the clarity. Key risks remain from external shocks and fiscal pressures, but the baseline outlook suggests steady policy with potential easing in 2026 if inflation continues to moderate.

Key Markets Likely to React to Interest Rate Decision

The interest rate decision will influence several key markets that historically track monetary policy shifts. The TSLA stock is sensitive to interest rate changes due to its growth valuation. The EURUSD currency pair often reacts to North American rate moves through capital flows. The BTCUSD crypto pair tends to respond to risk sentiment shifts linked to policy. Additionally, AMZN and USDCAD are notable for their sensitivity to interest rate and economic outlook changes.

FAQs

What was the latest North American interest rate decision?

The central bank held the rate steady at 6.50% on December 3, 2025, after a series of cuts since October 2024.

How does this rate compare historically?

The current 6.50% rate is down from a 7.25% peak in October 2024 but remains above pre-pandemic levels.

What are the main risks facing the North American economy?

Key risks include inflation volatility due to energy prices, geopolitical tensions, and fiscal sustainability concerns.

Key takeaway: The central bank’s steady hold at 6.50% signals a cautious approach amid easing inflation and growth uncertainties, with markets favoring stability but watching for future easing signals.