Bank of Canada
policymakers see the upcoming review of the
Canada–United States–Mexico Agreement (CUSMA)
as a “significant risk” to their outlook, according to a summary of the governing council’s most recent deliberations released on Tuesday.
“On trade policy, members agreed that the upcoming review of (CUSMA) was a significant risk,” the document said. “The uncertainty leading up to and during negotiations would likely weigh on business investment.”
The deliberations came in the lead-up to the central bank’s decision to hold its interest rate at 2.25 per cent on Dec. 10.
Policymakers discussed the outcome of CUSMA negotiations going two ways: a worst-case scenario involving the dissolution of CUSMA and higher tariffs, or a resolution of CUSMA negotiations that provides some stability for North American trade policy.
At the last rate decision of the year, Bank of Canada governor Tiff Macklem said the overnight rate was at “about the right level” to keep inflation contained and support the economy through the structural adjustment caused by a trade war with the United States, although uncertainty remained high.
Members of the governing council discussed their next move but
“given the high level of uncertainty, members agreed that while the current policy rate was at about the right level in the current situation, it was difficult to predict when and in which direction the next change in the policy rate would be,” the minutes said.
Many economists expect the Bank of Canada to hold its rate steady for 2026.
Members also discussed how the Canadian economy was showing more resilience than was first expected under U.S. tariffs. The economy expanded by 2.6 per cent in the third quarter, topping the central bank’s forecast of 0.5 per cent. There were also upward revisions to GDP from Statistics Canada for 2022, 2023 and 2024.
Policymakers also expect revisions for the third quarter, given the absence of U.S. trade data due to the U.S. government shutdown.
“Members agreed that information since the last decision had affected the near-term dynamics of GDP growth but had not altered their view that GDP would expand at a moderate pace in 2026 and inflation would remain close to the two per cent target,” the deliberations said.
The labour market showed strength in the fall, with the unemployment rate falling to 6.5 per cent in November. The bank’s governing council noted though that most of those job gains were in part-time work and vacancies remain low, with hiring intentions subdued.
“In sum, members agreed the Canadian economy was showing signs of resilience after a year of trade upheaval, but uncertainty remained high,” the summary said. “They would remain cautious in interpreting incoming data given recent volatility and would be prepared to react if their outlook changed materially.”
Policymakers expect inflation to rise slightly in the new year, due to the temporary HST/GST holiday a year ago.
“Looking through the near-term choppiness, governing council still expected soft demand and ongoing slack in the economy to roughly offset cost pressures associated with the reconfiguration of trade, keeping CPI inflation close to the two per cent target,” the minutes said. “Core measures of inflation were expected to ease gradually in the coming months.”
Members of governing council agreed that should a major shock materialize that would impact the inflation and growth outlooks, they would be prepared to respond.
• Email: jgowling@postmedia.com
Bank of Canada policymakers see CUSMA review as 'significant risk' to outlook
2025-12-23 18:30:33
