The Bank of Canada held its overnight rate at 2.25% on Wednesday, citing a 2.6% growth in the economy in the third quarter. The rate hold comes after two consecutive cuts. In a statement, the bank expressed surprise at the rate of growth given that domestic demand was flat. “The increase in GDP largely reflected volatility in trade,” said the bank’s statement, adding it “expects final domestic demand to grow in the fourth quarter, but with an anticipated decline in net exports, GDP will likely be weak. Growth is forecast to pick up in 2026, although uncertainty remains high and large swings in trade may continue to cause quarterly volatility.” The labour market showed signs of improvement, with solid gains over the last three months and a decline in the unemployment rate to 6/5% in November, however job markets in trade-sensitive sectors remain weak and economy-wide hiring intentions continue to be subdued. A slowing rate of inflation also influenced the bank’s decision to hold the rate. “CPI inflation slowed to 2.2% in October, as gasoline prices fell and food prices rose more slowly,” said the bank. “CPI inflation has been close to the 2% target for more than a year, while measures of core inflation remain in the range of 2.5% to 3%.” . The Bank believes, in the near term, “CPI inflation is likely to be higher due to the effects of last year’s GST/HST holiday on the prices of some goods and services. Looking through this choppiness,” “The Bank expects ongoing economic slack to roughly offset cost pressures associated with the reconfiguration of trade, keeping CPI inflation close to the 2% target.” The bank’s governing council is confident the rate hold is at the right level to hold inflation close to 2% while helping the economy through a period of structural adjustment but is prepared to act if economic uncertainty remains elevated. "If the outlook changes, we are prepared to respond,” reads the bank’s statement. “The bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”
