The Bank of Canada kept its key interest rate at 2.25 percent, a move widely expected after encouraging third-quarter data showed the Canadian economy’s ability to withstand some of the disruptions stemming from the trade war.
Governor Tiff Macklem said in his opening remarks on Wednesday that the current rate “appears to be at the right level” to support the economy through a “structural transition period,” while keeping inflation near the bank’s 2 percent target.
Macklem added: “That said, uncertainty remains high, and the range of potential outcomes is wider than usual. If the outlook changes, we are prepared to act.”
During the bank’s October meeting, the governor warned that the Canadian economy would face structural damage from U.S. tariffs.
Since then, the economy has proven more resilient than expected: GDP and job growth both beat forecasts in the third quarter, and the unemployment rate fell to 6.5 percent in November.
Even so, consumer spending and business investment remained nearly flat. That is likely to change in the fourth quarter, as the bank expects economic growth to slow.
Inflation is holding slightly above 2 percent, while the Bank of Canada’s core inflation measures — which exclude volatile components such as fuel prices and tax changes — are trending toward a level closer to 3 percent.
Although key Canadian sectors such as steel, aluminum, autos, and lumber have come under heavy pressure from U.S. tariffs — with broader effects on business investment — Macklem stressed that “the economy is showing overall resilience.”
The governor pointed to recent revisions by Statistics Canada to economic growth figures for 2022, 2023, and 2024 as one possible explanation for that resilience.
He said: “The revisions suggest that the Canadian economy was healthier than we thought before encountering the trade dispute with the United States. Specifically, they indicate that both demand and productive capacity were higher heading into this year.”
He later noted that although several major Canadian industries have been hit by high tariffs, the rest of the economy continues to “operate largely tariff-free” in its dealings with the United States.
He added: “The average tariff imposed on Canada by the United States is among the lowest in the world — around 6 percent.” And he concluded: “We have not yet seen spillover effects reaching the broader economy.”
