(Kitco News) - The Bank of Canada (BoC) maintained its key overnight rate at 2.25% on Wednesday, as expected, but warned that the outlook is unpredictable due to U.S. trade policies and geopolitical risks. The bank rate stayed at 2.50% and the deposit rate remained at 2.20%.
The Canadian dollar shot to session highs in the minutes after the release, but quickly returned to its prior level within 15 minutes of the announcement. USD/CAD last traded at 1.3556 per U.S. dollar, down 0.15% on the session.
Gold prices rose back toward session highs in Canadian dollar terms in the immediate wake of the announcement. XAU/CAD last traded at $7,174.52 per ounce for a gain of 2.00% on the daily chart.
The Bank of Canada said the outlook for the global and Canadian economies is little changed relative to the projection in the October Monetary Policy Report,” but warned that the outlook “is vulnerable to unpredictable US trade policies and geopolitical risks.”
They noted that economic growth in the United States continues to outpace expectations, while in the euro area, “growth has been supported by activity in service sectors and will get additional support from fiscal policy.”
“Overall, the Bank expects global growth to average about 3% over the projection horizon,” they wrote.
The BoC said that global financial conditions have remained accommodative overall. “Recent weakness in the US dollar has pushed the Canadian dollar above 72 cents, roughly where it had been since the October MPR,” they noted. “Oil prices have been fluctuating in response to geopolitical events and, going forward, are assumed to be slightly below the levels in the October report.”
Teh Bank said that U.S. trade restrictions and uncertainty are continuing to disrupt Canadian growth. “After a strong third quarter, GDP growth in the fourth quarter likely stalled,” they said. “Exports continue to be buffeted by US tariffs, while domestic demand appears to be picking up. Employment has risen in recent months. Still, the unemployment rate remains elevated at 6.8% and relatively few businesses say they plan to hire more workers.”
The BoC projects more modest economic growth in the near term. “The Bank projects growth of 1.1% in 2026 and 1.5% in 2027, broadly in line with the October projection,” they wrote.”A key source of uncertainty is the upcoming review of the Canada-US-Mexico Agreement.”
Turning to the inflation picture, they noted that CPI rose to 2.4% in December, but “the Bank expects inflation to stay close to the 2% target over the projection period, with trade-related cost pressures offset by excess supply.”
“Monetary policy is focused on keeping inflation close to the 2% target while helping the economy through this period of structural adjustment,” they concluded. “Governing Council judges the current policy rate remains appropriate, conditional on the economy evolving broadly in line with the outlook we published today. However, uncertainty is heightened and we are monitoring risks closely. If the outlook changes, we are prepared to respond. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”
