Bank of Canada governing council says trade uncertainty clouding outlook

OTTAWA – The Bank of Canada’s governing council says it’s difficult to predict which direction interest rates may go as trade uncertainty clouds its outlook.

The central bank released a summary Tuesday of its deliberations leading up to its decision earlier this month to hold its main policy rate steady at 2.25 per cent.

Council members all believed the current rate is appropriate for now, with the global and Canadian economies staying relatively resilient in the face of trade upheaval, the document said.

“Given the high level of uncertainty, members agreed that while the current policy rate was at about the right level in the current situation, it was difficult to predict when and in which direction the next change in the policy rate would be,” it said.

Council members then exchanged perspectives on what it would take to change their views of monetary policy.

“They agreed that uncertainty remained elevated and that they would assess incoming data relative to the bank’s outlook,” the summary said.

“If a significant new shock were to materialize, or an accumulation of evidence indicated that the evolution of economic activity and inflation was materially different from what they expected, governing council was prepared to respond.”

Members cited the fate of the Canada-U.S.-Mexico trade agreement as a “significant source of risk,” with uncertainty leading up to and during negotiations likely weighing on business investment.

“A worst-case scenario involving the dissolution of CUSMA and higher tariffs would be very damaging to the Canadian economy,” the document said.

“Alternatively, a resolution of CUSMA negotiations that provided some stability in North American trade policy could spur on business investment.”

Structural changes stemming from the reconfiguration of global trade is also making the bank’s outlook more foggy.

“Members acknowledged that fiscal and industrial policy measures were the appropriate tools to address this structural transition given that monetary policy cannot restore lost supply,” the bank said, noting federal government support to tariff-affected sectors.

“The federal budget included measures aimed at increasing public and private investment, but members agreed it will take some time for the impact of these measures to be fully realized.”

Council members expected fourth-quarter gross domestic product in Canada to be soft, with increases in consumption, housing and government spending offsetting weakness in business investment and net exports.

And they expected inflation to rise slightly in the next few months.

“Looking through the near-term choppiness, governing council still expected soft demand and ongoing slack in the economy to roughly offset cost pressures associated with the reconfiguration of trade, keeping (consumer price index) inflation close to the two per cent target.”

Desjardins managing director Royce Mendes said in a note that the bank’s deliberations on interest rate risks are two-sided.

“While market pricing for a rate hike has been delayed until December 2026, we still see a possibility that it either gets pushed back even further or switches to imply cuts,” he wrote.

“More recent data has looked softer than what officials had in hand on Dec. 10 and there remains ample headline risk from trade negotiations.”

This report by The Canadian Press was first published Dec. 23, 2025.

— By Lauren Krugel in Calgary