We called it, and so did pretty much everyone else. The Bank of Canada delivered what the market was expecting - a hold in its policy rate at 2.25%.

Why was this so predictable? Rewind the clock to the October rate cut announcement: the Bank said at that time that 2.25% was “about the right level” unless the outlook changes. If anything, the economic data has been stronger than expected.

A few takeaways from today's hold decision from ATB Economics:

Economic data has been decent, though modest growth still expected

The Canadian economy is holding up better than originally feared, especially compared to dire predictions when the trade war kicked off. Recall that the Bank had a tariff scenario in April where real GDP contracted for four consecutive quarters (in reality, GDP contracted only in Q2 before bouncing back).

The last three months have brought stronger job numbers, and Q3 GDP smashed expectations (though it was largely due to a big drop in imports - far from reassuring that the economy is actually strong).

The statement references Q3 GDP growth of 2.6%, which exceeded the Bank’s own forecast from October of 0.5%. The Bank also notes that “Canada’s labour market is showing some signs of improvement,” though cautions that there’s weakness in trade-sensitive sectors.

The Bank didn’t give a new forecast (that comes in January), but it did indicate that, despite some decent data, its view on 2026 has not fundamentally changed. From the press conference: “While information since the last decision has affected the near-term dynamics of GDP growth, it has not changed our view that GDP will expand at a moderate pace in 2026 and inflation will remain close to target.”

Headline inflation OK, though ‘core’ inflation elevated

The Bank reiterated that underlying, or core, inflation is still around 2.5%. That’s within the target range of 1-3%, but a touch above the 2% target.

With persistent inflation, the Bank is content to keep policy at its current rate (which is already below trend inflation - or negative in real terms).  The Bank seems confident that inflation will stay around 2%: “the Bank expects ongoing economic slack to roughly offset cost pressures associated with the reconfiguration of trade, keeping CPI inflation close to the 2% target.”

Bias towards holding

Governor Tiff Macklem didn’t say this outright, but the combo of sticky core inflation and a more-resilient-than-expected economy signals more holding to come.

Things can change, but given the incoming data and latest forecast (we just upgraded ours), the Bank of Canada came across like it’s content where it is. From the forward-looking statement:

“If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.”

In fact, the bond yields have been creeping higher as of late. Following the job surprise on Friday, 5-year yields jumped 20 basis points.

Monetary policy can only do so much

The Bank once again highlighted the “structural” damage caused by U.S. trade actions, and the upward impact on prices. This is limiting the role monetary policy can play to boost demand without stoking inflation.

Prior to today, the Bank has been dropping not-so-subtle hints that it feels monetary policy is a very blunt instrument to handle this trade shock.

From the minutes of the October decision: “Governing Council members also agreed that monetary policy was likely close to the limits of what it could do to support the economy in the current circumstances.”

From today’s press conference, more talk about the limits of monetary policy: “This is more than a cyclical downturn—it’s a structural transition. Monetary policy cannot restore lost supply.”

We’re moving on… to other policy levers

With the Bank on hold, and signalling it may be done cutting, all eyes are on other policy levers outside the Bank of Canada’s reach. It appears Tiff Macklem has had his day in the spotlight, and now it’s up to elected officials to create the conditions for growth.

Again, the Bank has already talked about this. From September: “Monetary policy can’t reverse the damage caused by the ongoing trade conflicts. But structural reform could help improve Canada’s productivity and competitiveness.”

From the press conference, Tiff Macklem noted that federal budget measures to boost investment may help, though “It will take some time for the impact of these measures to be fully realized.”

As we highlighted in our outlook released yesterday, 2026 is the year of execution as we wait to see if promises to build big things faster, export more overseas and free up internal trade bear fruit.

How did we get here?

The Bank of Canada rapidly hiked its policy rate in response to high inflation in 2022-2024, from 0.25% to 5%.  It was one of the most aggressive hiking cycles since the Bank started targeting inflation in the early 1990s. With inflation easing, the Bank started unwinding its rate cuts mid-2024. Now it believes rates are about right to balance inflation risks.

Answer to the previous trivia question: Over 60% of Canadians cited the rising cost of living as a top concern in a recent poll.

Today’s trivia question: True or false? The Minister of Finance (or their representative) sits on the Bank of Canada’s Board of Directors but has no vote.