The economy is more resilient than expected, and the Bank of Canada announced that interest rates will remain unchanged as scheduled

The Zhitong Finance App learned that the Bank of Canada announced on Wednesday that it will keep the benchmark interest rate unchanged at 2.25%. Recent data shows that the Canadian economy is more resilient than expected, but the Bank of Canada said that the current interest rate level is still suitable for dealing with the pressure brought about by the trade war and will help stabilize inflation near the target level.

Staying on hold this time is in line with the general expectations of the market. Bank of Canada Governor Macram said that despite the impact of US tariffs, the overall performance of the Canadian economy is “more resilient”, and there is still some “idle production capacity” in the economy, which will keep inflation close to the target level of 2%.

The Bank of Canada reiterated in its statement that “the current policy interest rate is generally appropriate,” and believes it is appropriate to keep interest rates at the “lower end of the neutral range.” At the same time, the Bank of Canada emphasized that if the economic outlook changes, it will “be ready to take countermeasures at any time.”

In terms of market reaction, the Canadian dollar weakened after the announcement of the decision and fell to an intraday low against the US dollar to 1.3860 Canadian dollars against the US dollar, down about 0.1%. Canadian Treasury yields declined across the board, and two-year Treasury yields fell about 3 basis points to 2.66%.

Canada's economic data is unexpectedly strong recently. The labor market added 181,000 jobs in the past three months; real GDP grew at an annualized rate of 2.6% in the third quarter, significantly higher than expected. Macram pointed out that the latest revisions to the 2022 to 2024 GDP show that Canada's economy was “healthier than previously thought” before the trade conflict broke out, which may be one of the reasons it is more resilient.

However, he stressed that these revisions did not mean a significant reduction in the output gap, but rather indicated “both demand and economic production capacity were higher than previously anticipated.” Despite the impact on the GDP path, the Central Bank of Canada still expects the economy to expand at a moderate pace in 2026 and keep inflation close to the target range. The overall statement shows that the Central Bank of Canada is “comfortable” with maintaining stable interest rates, unless there are major changes in growth and inflation.

Charles St-Arnaud, chief economist at Servus Credit Union, stated: “The statement does not change our view that the Bank of Canada will keep interest rates unchanged for a longer period of time. Furthermore, it is very clear that a significant economic deterioration is required to trigger interest rate cuts.”

Macram said that the Central Bank of Canada will include Prime Minister Carney's first budget in the January forecast, and it is expected that increased defense spending and investment plans will simultaneously boost the economy's “demand and supply.”

At the same time, the central bank warned that the review of the North American Trade Agreement, continued adjustments to the impact of tariffs, and the volatility of economic data are all making the outlook even more uncertain. “Fluctuations in trade and quarterly GDP make it harder to determine the basic momentum of the economy.”

In terms of the labor market, the Central Bank of Canada said that recent employment performance “showed some signs of improvement,” including three consecutive months of strong employment growth and falling unemployment. However, policymakers also pointed out that trade-sensitive industries are still weak, corporate recruitment intentions are sluggish, and final domestic demand (FDD) remained stagnant in the third quarter, and trade fluctuations alone drove overall GDP.

CIBC economist Katherine Judge pointed out in the report: “The Bank of Canada has downplayed the positive performance of recent data, emphasizing that the job market has only partially improved, while trade-sensitive industries are still under pressure, and the willingness of companies to hire is weak.”