The Bank of Canada (BoC) just decided to hold interest rates steady at 2.25% in its policy announcement of 2025, even after a surprise 2.6% jump in gross domestic product (GDP) during the third quarter.
At first, that GDP data might look like good news. But a deeper look shows that most of that growth came from trade swings, not strong domestic demand. Clearly, the central bank knows it, which is why it’s keeping rates right where they are while watching how things unfold.
In this article, I’ll talk about how this news affects Canadian stocks and highlight one top TSX bank that’s starting to look attractive as long-term rates stabilize.
Source: Getty Images
How the BoC rate pause could impact Canadian stocks in 2026
While the BoC’s latest decision to keep rates steady doesn’t signal a full-blown recovery, it’s enough to bring some breathing room to both businesses and investors. Notably, the central bank has already trimmed rates earlier this year and now wants to see how the economy responds. At the same time, growth is expected to remain flat in the short term, before picking up again in 2026.
This rate stability could benefit rate-sensitive sectors like banking, insurance, utilities, and consumer-focused companies. The expectation that borrowing costs won’t rise further means consumers and businesses may gradually start to regain confidence in the economy.
For stock investors, this opens the door to a few opportunities, as fundamentally strong companies that have strong balance sheets, stable earnings, and attractive dividend payouts will attract investors’ attention in the coming months.
Sectors that could gain in this environment
With rates gradually stabilizing, TSX-listed bank stocks could start to look more attractive. While many Canadian banks have already weathered multiple headwinds in recent years, including regulatory challenges and rising loan-loss provisions, they could be setting up for a stronger rebound. Similarly, retailers and real estate-linked companies may benefit as borrowing becomes more affordable and consumer sentiment slowly improves.
On the other hand, Canadian stocks tied closely to trade, like materials and export-heavy manufacturers, might continue to face challenges in the near term due to U.S. tariffs.
A top bank stock that looks even more attractive after this rate decision
I find Toronto-Dominion Bank (TSX:TD) to be one of those Canadian stocks that now look even more appealing after the BoC’s December rate decision.
While it faced its share of regulatory setbacks in the U.S. last year, its latest earnings looked impressive, which could improve further with more stability in interest rates.
In the fourth quarter of its fiscal year 2025 (ended in October), TD’s adjusted net income climbed 22% from a year ago to $3.9 billion. That growth was mainly led by strong results in its Canadian personal and commercial banking segment, where loan and deposit volumes rose. Even in its U.S. retail operations, where scrutiny had been highest, TD delivered over $1 billion in adjusted earnings.
Interestingly, TD stock has already jumped nearly 64% so far in 2025. Now, with rates holding steady, TD’s diversified business model, strong capital position, and clear cost-efficiency plans could help it gain momentum as market conditions gradually improve further in 2026.
