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\u2019s ability to withstand some of the disruptions stemming from the trade war.<\/p>\n
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Governor Tiff Macklem said in his opening remarks on Wednesday that the current rate \u201cappears to be at the right level\u201d to support the economy through a \u201cstructural transition period,\u201d while keeping inflation near the bank\u2019s 2 percent target.<\/p>\n
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Macklem added: \u201cThat said, uncertainty remains high, and the range of potential outcomes is wider than usual. If the outlook changes, we are prepared to act.\u201d<\/p>\n
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During the bank\u2019s October meeting, the governor warned that the Canadian economy would face structural damage from U.S. tariffs.<\/p>\n
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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.<\/p>\n
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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.<\/p>\n
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Inflation is holding slightly above 2 percent, while the Bank of Canada\u2019s core inflation measures \u2014 which exclude volatile components such as fuel prices and tax changes \u2014 are trending toward a level closer to 3 percent.<\/p>\n
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Although key Canadian sectors such as steel, aluminum, autos, and lumber have come under heavy pressure from U.S. tariffs \u2014 with broader effects on business investment \u2014 Macklem stressed that \u201cthe economy is showing overall resilience.\u201d<\/p>\n
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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.<\/p>\n
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He said: \u201cThe 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.\u201d<\/p>\n
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He later noted that although several major Canadian industries have been hit by high tariffs, the rest of the economy continues to \u201coperate largely tariff-free\u201d in its dealings with the United States.<\/p>\n
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He added: \u201cThe average tariff imposed on Canada by the United States is among the lowest in the world \u2014 around 6 percent.\u201d And he concluded: \u201cWe have not yet seen spillover effects reaching the broader economy.\u201d<\/p>\n
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