Bank of Canada uncertain about next rate move amid trade concerns

Investing.com -- The Bank of Canada is uncertain whether its next policy move will be a rate cut or hike after holding the overnight rate at 2.25% during its December 10 meeting.

In a summary of deliberations released Tuesday, the central bank’s seven-member governing council cited "high level of uncertainty" that made it "difficult to predict when and in which direction the next change in the policy rate would be."

The council, led by Governor Tiff Macklem, discussed how the upcoming review of the Canada-United States-Mexico Agreement (CUSMA) would affect the economic outlook, noting this represents a significant risk factor.

Officials observed that the Canadian economy showed "signs of resilience after a year of trade upheaval," with GDP growing 2.6% in the third quarter after declining 1.8% in the second quarter. This growth was primarily driven by a large decline in imports rather than strong domestic demand.

The labor market showed improvement with the unemployment rate falling to 6.5% following three months of solid employment growth, though much of the recent hiring was in part-time positions.

Inflation eased to 2.2% in October, in line with expectations. Core inflation measures remained between 2.5% and 3%, with the council agreeing that underlying inflation continued to be around 2.5%.

Council members noted that CPI inflation is likely to rise slightly in the coming months due to base effects from last year’s GST/HST holiday, but they expect inflation to remain close to the 2% target over the medium term.

The bank maintained that a policy rate at the lower end of its neutral range was appropriate to support the economy through structural transition while keeping inflation contained. Officials agreed they would be prepared to respond if economic activity or inflation evolved differently than expected.

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