BOC: Policy Rates Will Remain Unchanged in the Short Term

■ The Bank of Canada (BOC) decided to keep its policy rate unchanged after three meetings, but remained cautious amid high uncertainty surrounding trade policy and other factors.  

■ Because predicting the direction or timing of the next policy rate change is difficult, the assessment will be based on a comparison with the central bank's expectations. 
 
   On the 23rd, the BOC released the minutes of its monetary policy meeting held on the 10th. BOC Governor Tiff Macklem stated, "US trade policy and the revision of the Canada-Mexico-Canada Agreement (CUSMA) (expected in 2026) have created unease for business activity, and dealing with high tariffs is also a major challenge." Real GDP growth for the period July-September 2023 was 2.6%, primarily due to a significant reduction in imports and government spending, which boosted growth and prevented a recession. However, household consumption and business equipment investment were weak. High US tariffs on products such as steel and aluminum have hit the Canadian industry, and uncertainty surrounding trade policy has dampened business equipment investment. Given the limited availability of US trade data, significant revisions are possible in the future, and the BOC anticipates a slowdown in the economy during the October-December period. 

 
   The meeting minutes noted that current information is broadly consistent with October's economic expectations; therefore, the decision was made to maintain the policy rate unchanged. Participants unanimously agreed that setting the policy rate at the lower end of the neutral interest rate range was appropriate, as it helps support the economy to some extent during structural transformations (fiscal and industrial policies) while curbing inflationary pressures. The meeting also discussed whether the next policy rate hike or cut would be necessary. Given the current high level of uncertainty, predicting the timing and direction of changes is difficult. Participants indicated that future economic data will be compared with the central bank's forecasts, and adjustments will be made as needed if significant new shocks occur or if economic activity and price trends deviate significantly from expectations. 
 

   The next central bank meeting is scheduled for January 28, 2026, at which time a monetary policy report will be released, along with future economic forecasts. The November Consumer Price Index (CPI) rose 2.2% year-on-year, close to the central bank's target (2%). Due to the temporary exemption of the federal Goods and Services Tax (GST) and the Uniform Sales Tax (HST) from December 2024 to February 2025, CPI growth is expected to temporarily accelerate. However, weak demand and a slowing economy (with excess capacity) will offset cost pressures from trade restructuring, and the BOC expects CPI growth to remain around 2%. Given the improved labor market, with the unemployment rate falling to 6.5%, the lowest level in a year and four months, the policy rate is likely to remain at 2.25%.