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Policy rate held at 2.25%, with Governing Council judging current settings as appropriate and at the lower end of neutral after 100 bp of cuts earlier in 2025
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Canadian economy showing resilience, supported by upward GDP revisions, though Q4 growth expected to soften and data volatility remains high
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Labour market improving but still mixed, with unemployment down to 6.5%, hiring concentrated in part-time jobs, and subdued business hiring intentions
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Inflation near target, with CPI at 2.2% and underlying inflation around 2.5%; near-term bumps expected from base effects but medium-term outlook unchanged
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High uncertainty persists, led by CUSMA trade risks and global trade reconfiguration; policy remains fully data-dependent with no clear bias on the next move
Global backdrop
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Global growth remains resilient despite rising US protectionism
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US economy: Consumer spending and AI investment continue to support growth, but government shutdown data gaps add uncertainty
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US inflation risks tilted slightly higher due to possible tariff pass-through
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Eurozone growth stronger than expected, led by services; defense spending could offset manufacturing pressure
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China growth remains weak, with exports offsetting soft domestic demand
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Financial conditions, oil prices, and CAD broadly unchanged vs October MPR
Canadian growth outlook
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GDP revisions show Canada entered 2025 on firmer footing than previously estimated
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Q3 GDP +2.6%, stronger than expected, driven mainly by lower imports, not domestic strength
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Final domestic demand flat, with weakness in business investment and consumption
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Q4 growth expected to be soft, with housing, consumption, and government spending offsetting weak exports and capex
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Data volatility remains high, with risk of further revisions due to missing US trade data
Labour market
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November employment gains encouraging, pushing unemployment down to 6.5%
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Labour signals mixed:
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Job growth concentrated in part-time employment
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Trade-exposed sectors stabilized, but at lower levels
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Vacancies low and business hiring intentions subdued
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Inflation assessment
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Headline CPI eased to 2.2% (October), in line with expectations
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Core inflation measures at 2.5%–3%, with underlying inflation seen near 2.5%
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Near-term CPI expected to tick higher due to base effects from last year’s GST/HST holiday
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Medium-term inflation outlook unchanged, with slack offsetting trade-related cost pressures
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Core inflation expected to ease gradually
Key risks and structural issues
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CUSMA review seen as a major downside risk for business investment
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Trade uncertainty weighing heavily on corporate decision-making
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Structural trade reconfiguration adds uncertainty across regions and sectors
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Fiscal and industrial policy seen as primary tools, as monetary policy cannot restore lost supply
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Less slack than previously thought, but economy still in excess supply
Policy decision and bias
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Policy rate held at 2.25%, following 100 bp of cuts earlier in 2025
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Current rate judged appropriate, sitting at the lower end of neutral
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Supports growth while keeping inflation contained
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No clear bias toward the next move—direction and timing remain data-dependent
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Governing Council prepared to respond if incoming data materially diverges from the outlook
Bottom line
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Economy showing resilience, but uncertainty remains elevated
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Inflation broadly on track, with near-term noise but stable medium-term expectations
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Policy firmly on hold, with flexibility preserved as Canada navigates trade-driven structural change
This article was written by Greg Michalowski at investinglive.com.