Introduction to Monetary Policy Decision
Good morning, I am pleased to be here with Senior Deputy Governor Carolyn Rogers to discuss today’s monetary policy decision. Today, the Governing Council maintained the policy interest rate at 2.25%. We have three main messages to share regarding the current state of the economy and our decision-making process.
Key Messages
Firstly, the steep US tariffs on steel, aluminum, autos, and lumber have significantly impacted these sectors, and the uncertainty surrounding US trade policy is affecting business investment more broadly. However, the economy is proving resilient overall. Secondly, inflationary pressures remain contained despite the added costs associated with trade reconfiguration. Total CPI inflation has been close to the 2% target for over a year and is expected to remain near the target. Lastly, the current policy rate is seen as appropriate to keep inflation close to 2% while supporting the economy through this period of structural adjustment.
Economic Growth and Trade
In November, Statistics Canada published revisions to Canada’s economic growth numbers for 2022, 2023, and 2024, suggesting the Canadian economy was healthier than previously thought before the US trade conflict. The revisions indicate both demand and economic capacity were higher coming into this year, which may explain the resilience seen in recent data. After a 1.8% decline in the second quarter due to lower exports, Canadian GDP grew 2.6% in the third quarter, largely reflecting volatility in trade.
Labor Market and Inflation
The labor market is showing signs of improvement, with solid employment gains over the past three months and a decline in the unemployment rate to 6.5% in November. However, hiring intentions across the economy are muted. Inflation has evolved largely as expected, with CPI inflation at 2.2% in October and measures of core inflation remaining in the range of 2½% to 3%. The recent federal budget includes increases in government spending and measures to boost public and private sector investment, which will contribute to growth in both demand and supply in the economy.
Monetary Policy Stance
Taking all these developments into consideration, the Governing Council assessed the stance of monetary policy. After cutting the policy interest rate in September and October, the Council had indicated that if inflation and economic activity evolved broadly in line with the October projection, the policy rate would be about right. The Council decided to hold the policy rate unchanged, agreeing that a policy rate at the lower end of the neutral range was appropriate to provide support for the economy while keeping inflationary pressures contained.
Conclusion
In conclusion, the Bank of Canada is focused on ensuring Canadians continue to have confidence in price stability through this period of global upheaval. Increased trade friction with the United States means the economy works less efficiently, with higher costs and less income. Monetary policy cannot restore lost supply, but it can help the economy adjust as long as inflation is well-controlled. The Bank of Canada will continue to assess incoming data relative to its outlook and is prepared to respond if a new shock or accumulation of evidence materially changes the outlook. With that, the Senior Deputy Governor and I would be pleased to take your questions.
