The Bank of Canada has maintained its benchmark interest rate at 2.25 percent for the second consecutive meeting. The central bank’s economic outlook, as shared by governor Tiff Macklem during a press conference in Ottawa, has not significantly changed since October. However, Macklem emphasized that uncertainties have heightened due to factors like unpredictable U.S. trade policies and elevated geopolitical risks.
The upcoming assessment of the Canada-U.S.-Mexico Agreement (CUSMA) is flagged as a significant source of economic uncertainty and a key risk to Canada’s economic prospects. Macklem acknowledged the shift from open, rules-based trade with the U.S. and stressed the need for adaptation to the new trade environment.
Furthermore, Macklem cautioned that while Canada is diversifying its trade relationships, it may not fully offset the “structural” impact of the U.S. trade disputes. The outcome of the CUSMA review could influence future interest rate decisions, according to Macklem.
Ongoing challenges to the independence of the U.S. Federal Reserve are adding to the economic uncertainties globally, including in Canada. Macklem voiced support for U.S. Fed chair Jerome Powell amidst pressure from President Donald Trump to lower interest rates, highlighting the importance of the Fed’s independence.
Economists anticipate modest GDP growth in the upcoming years, with the central bank projecting a 1.1 percent growth in 2026 and 1.5 percent in 2027. The current interest rate is deemed appropriate to maintain inflation near the target, but the bank stands ready to adjust if the economic outlook shifts.
In conclusion, while the Bank of Canada is maintaining its stance on interest rates, uncertainties surrounding trade negotiations and economic slack may influence future policy decisions.