The Bank of Canada left its target for the overnight rate unchanged at 2.25% today, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
In its statement, the Bank notes that major global economies continue to show resilience despite U.S. trade protectionism, although uncertainty remains high. U.S. growth is being supported by strong consumer spending and a surge in artificial intelligence investment.
The recent government shutdown created volatility in quarterly data and delayed the release of key indicators, while tariffs are adding upward pressure to inflation.
The euro area is performing better than expected, driven largely by services, while weak domestic demand and ongoing stress in the housing sector continue to weigh on China’s growth. Global financial conditions, oil prices and the Canadian dollar remain broadly stable since the October Monetary Policy Report.
Canada’s economy expanded by 2.6% in the third quarter, a result the Bank described as unexpectedly strong, despite flat final domestic demand.
The central bank attributes the growth largely to trade volatility. Final domestic demand is expected to increase in the fourth quarter, but declining net exports are likely to leave GDP growth weak.
Forecasts point to stronger momentum in 2026, though the Bank cautions that uncertainty is high and trade could continue to drive quarterly swings.
Labour market conditions have improved. Employment posted solid gains over the past three months and the unemployment rate fell to 6.5% in November.
The Bank notes, however, that trade-sensitive industries remain under strain and overall hiring intentions are subdued.
Headline CPI eased to 2.2% in October, reflecting lower gasoline prices and slower food inflation.
CPI has hovered near the Bank’s 2% target for more than a year, though core inflation measures remain between 2.5% and 3%.
The Bank estimates underlying inflation to be around 2.5%. Inflation is expected to move higher in the near term due to base-year effects linked to last year’s GST/HST holiday, but economic slack is projected to offset cost pressures associated with trade restructuring, keeping inflation close to 2%.
Governing Council considers the current policy rate appropriate to maintain price stability if the economy evolves broadly in line with October projections.
It stresses that uncertainty remains elevated and that it is prepared to respond if the outlook shifts.
The next interest rate announcement is scheduled for January 28, 2026, alongside publication of the next Monetary Policy Report.
