The Bank of Canada held its interest rate at 2.25 per cent on Wednesday, citing a more resilient economy and contained inflationary pressures.

“In the current situation, governing council sees the current policy rate at about the right level to keep inflation close to two per cent while helping the economy through this period of structural adjustment,” Bank of Canada governor Tiff Macklem said in his opening remarks. “Nevertheless, uncertainty remains high and the range of possible outcomes is wider than usual.”

Macklem added if the outlook changes or there is a new shock, the central bank is prepared to respond. Wednesday’s decision was widely expected by economists following better-than-expected growth in the third quarter and signs of improvement in the labour market.

Watch the news conference here

The Bank of Canada had projected gross domestic product (GDP) in the third quarter to expand by 0.5 per cent, but Statistics Canada reported the economy grew by 2.6 per cent. This was thanks to a better trade balance compared to the second quarter, when exports plummeted and the economy contracted by 1.8 per cent. That third quarter reading, however, is widely expected to be revised, as Statistics Canada was dealing with incomplete trade data due to the U.S. government shutdown.

“This was much stronger than we expected, but largely reflected volatility in trade,” said Macklem. “Final domestic demand was flat during the quarter.”

Macklem said the bank expects growth to resume in final domestic demand, but GDP growth will likely remain weak in the final quarter of 2025, before a pickup in 2026.

The bank also took note of the recent revisions to GDP released by Statistics Canada, which showed upward revisions in 2022, 2023 and 2024. Macklem said it may explain some of the resilience seen in more recent data.

Looking ahead, uncertainty is expected to remain, due to the upcoming review of the Canada-United-States-Mexico-Agreement (CUSMA) and continued volatility in GDP data.

“There is also uncertainty about how the Canadian economy will adjust to higher tariffs,” he said. “The volatility we’re seeing in trade and quarterly GDP make it more difficult to assess the underlying momentum of the economy.”

Canada’s unemployment rate sat at 6.5 per cent in November, down from its peak of 7.1 per cent in September. The central bank said the job market in trade-affected sectors remains weak and hiring intentions in the overall economy are expected to remain muted.

  • Read the Bank of Canada’s official statement
  • ‘Head-scratcher’ jobs report has markets flirting with rate hike in 2026, economists say

Headline CPI inflation was 2.2 per cent in October and the central bank estimates underlying inflation still remains around 2.5 per cent, while core measures remain in the 2.5 to three per cent range.

“In the months ahead, we will see some choppiness in headline inflation, reflecting the temporary GST/HST holiday on some goods and services a year ago,” said Macklem. “Seeing through this choppiness, we expect ongoing economic slack to roughly offset cost pressures associated with the reconfiguration of trade, keeping CPI inflation close to the two per-cent target.”

The federal government’s recent budget showed increases in government spending towards defence, public and private investment. Macklem said it will take some time to see the impact of these measures, but said the central bank expects them to have an impact on the demand and supply side of economy, and will incorporate the new fiscal measures in his next monetary policy report in January.