The Bank of Canada has maintained its key interest rate at 2.25 percent for the second consecutive meeting, citing heightened economic uncertainty due to ongoing trade negotiations with the U.S. and Mexico. Governor Tiff Macklem emphasized that the days of open, rules-based trade with the U.S. are over, and Canada must adapt to this new reality. The upcoming review of the Canada-U.S.-Mexico Agreement (CUSMA) poses a significant risk to the economic outlook, with potential impacts on future rate decisions.
Macklem noted that the central bank’s current projections assume U.S. tariffs remain in place, but this could change depending on the CUSMA review. He also highlighted concerns over the independence of the U.S. Federal Reserve, which could further destabilize global economic conditions. Despite a strong third quarter, Canada’s economic growth likely stalled in Q4 as U.S. tariffs continued to affect exports.
Economists suggest that any future policy shifts by the Bank of Canada may lean toward rate cuts if growth slows or trade relations with the U.S. deteriorate further. The bank expects modest GDP growth and stable rates near its two percent inflation target, but uncertainties surrounding trade and geopolitical risks remain key challenges.
