The Bank of Canada has decided to keep its key interest rate steady at 2.25%. This announcement comes amid strong economic growth indicators as the year comes to a close. Most economists anticipated that the central bank would not alter its rate in the final decision of the year, given the recent positive employment and economic data.
Current Economic Indicators
- Unemployment Rate: 6.5% (November)
- Economic Growth: 2.6% in Q3
- Inflation Rate: Around 2% target
According to Bank of Canada Governor Tiff Macklem, the Canadian economy is in a stronger position than previously thought despite challenges from trade tensions with the United States. However, he cautions that growth may slow in the upcoming months.
Future Growth Predictions
Macklem stated, “Given the anticipated decline in net exports, GDP growth is likely to be weak in the fourth quarter, but should recover in 2026.” He emphasized that the increased trade friction with the U.S. could lead to inefficiencies and higher costs for the Canadian economy.
Impact of Federal Budget
The bank noted that spending outlined in the latest federal budget is expected to increase both supply and demand, but the effects will take time to be realized. The current interest rate of 2.25% remains 1% lower than at the start of the year, following four rate reductions in January, March, September, and October.
Outlook for Monetary Policy
In the October decision, Macklem suggested that the recent reduction might be the last for a significant period. He reiterated this position in the latest announcement, indicating that the current rate is deemed appropriate to maintain inflation near the 2% target while aiding economic adjustment.
This steady interest rate may persist throughout much of 2026, with many economists predicting that the next move by the Bank of Canada could be an increase. The future of Canadian economic health will also hinge on the evolving trade relationship with the United States, especially with the impending review of the trade agreement between the U.S., Canada, and Mexico.
