Author: Erik Hertzberg and Nojoud Al Mallees
(Bloomberg) — The Bank of Canada kept interest rates steady and said that while the economy appears more resilient than previously thought, current borrowing cost levels remain appropriate to mitigate the damage from the trade war.
Policymakers, led by Governor Tiff Macklem, kept the policy rate at 2.25% on Wednesday, in line with consensus expectations from markets and a Bloomberg survey of economists.
McClem said that while recent data showed that the Canadian economy has “generally shown resilience” in the face of U.S. tariffs, the bank still believes that “ongoing economic weakness” has kept inflation close to the bank’s 2% target.
In a statement, the bank reiterated that current policy rates were “about the right level” if its October forecast holds, and said it believed it would be appropriate to keep borrowing costs “at the lower end of the neutral range”.
“Uncertainty remains high. If the outlook changes, we are prepared to respond,” it said.
The Canadian dollar fell to the day’s low against the U.S. dollar after the bank’s decision, falling 0.1% to C$1.3860 as of 9:50 a.m. in Ottawa. Canadian debt rose across the board, with the two-year Treasury yield falling about three basis points to 2.66%.
The latest data showed that Canada’s economy was stronger than previously expected, with the labor market adding 181,000 jobs in three months and real gross domestic product growing at an annualized rate of an astonishing 2.6% in the third quarter.
In opening remarks to reporters, McCallum said recent revisions to Canada’s gross domestic product for 2022, 2023 and 2024 may explain “some of the resilience” the bank is seeing and “suggest that the Canadian economy is healthier than we thought before it was hit by the U.S. trade conflict.”
Meanwhile, MacCallum would not say whether the bank believed the revisions had led to a narrowing of the output gap, but said the changes “suggest both demand and economic capacity are higher this year.”
“While information since the last decision has affected the near-term dynamics of GDP growth, it does not change our view that GDP will grow modestly in 2026 and inflation will remain close to target,” McClam said.
A neutral series of communications suggests the central bank is willing to stay on the sidelines barring any major changes in inflation and growth. Despite acknowledgment that the economy may be more resilient than previously thought, the governor’s comments suggested the central bank sees little change in the output gap.
“Overall, there was nothing in the statement that changed our view that the Bank of Canada is likely to keep policy rates on hold for an extended period of time,” said Charles St-Arnaud, chief economist at Servus Credit Union. “Moreover, it is clear that the bar for a rate cut is very high and would require a significant deterioration in the outlook.”
Macklem said the bank would also include Prime Minister Mark Carney’s first federal budget in its new forecasts for January, but he also said the government’s increased defense spending and investment measures would help “demand and supply in the economy”.
The bank believes that the upcoming review of the North American trade agreement and the economy’s adjustment to higher tariffs will increase uncertainty. Recent volatility in economic data has also complicated the situation, the bank said.
“The volatility we’ve seen in trade and quarterly gross domestic product makes it more difficult to assess the underlying dynamics of the economy,” he said.
The bank said in a statement that the labor market showed “some signs of improvement,” marking three months of strong job growth and a fall in the unemployment rate. But they also noted sluggish hiring intentions and weakness in trade-sensitive industries.
“Policymakers downplayed upside surprises in recent data, noting that the labor market showed only some signs of improvement, with trade-sensitive sectors remaining soft and hiring intentions subdued, and that domestic demand ended up flat in the third quarter, while the overall data was driven by trade volatility,” Canadian Imperial Bank of Commerce economist Katherine Judge said in a note to investors.
McCallum and Senior Deputy Premier Caroline Rogers will speak to reporters at 10:30 a.m. Ottawa time.
—With help from Curtis Heinzl.
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Last modified: December 10, 2025
