• Policy rate held at 2.25%, with Governing Council judging current settings as appropriate and at the lower end of neutral after 100 bp of cuts earlier in 2025

  • Canadian economy showing resilience, supported by upward GDP revisions, though Q4 growth expected to soften and data volatility remains high

  • Labour market improving but still mixed, with unemployment down to 6.5%, hiring concentrated in part-time jobs, and subdued business hiring intentions

  • Inflation near target, with CPI at 2.2% and underlying inflation around 2.5%; near-term bumps expected from base effects but medium-term outlook unchanged

  • High uncertainty persists, led by CUSMA trade risks and global trade reconfiguration; policy remains fully data-dependent with no clear bias on the next move

Global backdrop

  • Global growth remains resilient despite rising US protectionism

  • US economy: Consumer spending and AI investment continue to support growth, but government shutdown data gaps add uncertainty

  • US inflation risks tilted slightly higher due to possible tariff pass-through

  • Eurozone growth stronger than expected, led by services; defense spending could offset manufacturing pressure

  • China growth remains weak, with exports offsetting soft domestic demand

  • Financial conditions, oil prices, and CAD broadly unchanged vs October MPR

Canadian growth outlook

  • GDP revisions show Canada entered 2025 on firmer footing than previously estimated

  • Q3 GDP +2.6%, stronger than expected, driven mainly by lower imports, not domestic strength

  • Final domestic demand flat, with weakness in business investment and consumption

  • Q4 growth expected to be soft, with housing, consumption, and government spending offsetting weak exports and capex

  • Data volatility remains high, with risk of further revisions due to missing US trade data

Labour market

  • November employment gains encouraging, pushing unemployment down to 6.5%

  • Labour signals mixed:

    • Job growth concentrated in part-time employment

    • Trade-exposed sectors stabilized, but at lower levels

    • Vacancies low and business hiring intentions subdued

Inflation assessment

  • Headline CPI eased to 2.2% (October), in line with expectations

  • Core inflation measures at 2.5%–3%, with underlying inflation seen near 2.5%

  • Near-term CPI expected to tick higher due to base effects from last year’s GST/HST holiday

  • Medium-term inflation outlook unchanged, with slack offsetting trade-related cost pressures

  • Core inflation expected to ease gradually

Key risks and structural issues

  • CUSMA review seen as a major downside risk for business investment

  • Trade uncertainty weighing heavily on corporate decision-making

  • Structural trade reconfiguration adds uncertainty across regions and sectors

  • Fiscal and industrial policy seen as primary tools, as monetary policy cannot restore lost supply

  • Less slack than previously thought, but economy still in excess supply

Policy decision and bias

  • Policy rate held at 2.25%, following 100 bp of cuts earlier in 2025

  • Current rate judged appropriate, sitting at the lower end of neutral

  • Supports growth while keeping inflation contained

  • No clear bias toward the next move—direction and timing remain data-dependent

  • Governing Council prepared to respond if incoming data materially diverges from the outlook

Bottom line

  • Economy showing resilience, but uncertainty remains elevated

  • Inflation broadly on track, with near-term noise but stable medium-term expectations

  • Policy firmly on hold, with flexibility preserved as Canada navigates trade-driven structural change

Source: Investing Live