This is an account of the deliberations of the Bank of Canada’s Governing Council leading to the monetary policy decision on December 10, 2025.
This summary reflects discussions and deliberations by members of Governing Council in stage three of the Bank’s monetary policy decision-making process. This stage takes place after members have received all staff briefings and recommendations.
Governing Council’s policy decision-making meetings began on December 5, 2025. The Governor presided over these meetings. Members in attendance were Governor Tiff Macklem, Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, Rhys Mendes and Michelle Alexopoulos.
International economy
Governing Council members began their deliberations by discussing global economic developments since the October Monetary Policy Report. Members agreed that the global economy was showing continued resilience in the face of US protectionism.
In the United States, the absence of official data during the government shutdown clouded the picture. Available information suggested that strong consumer spending and investment in artificial intelligence had continued to support growth. Unemployment was relatively stable, although layoffs in the private sector had been increasing. Members discussed whether early indications of retail sales for Black Friday suggested US consumption could be boosted by more than usual for the holiday period. Rising equity prices was likely providing some support for consumer spending by wealthier households. Consumer price index (CPI) inflation in the United States had ticked up slightly in September, likely due to some pass-through of tariffs to consumer prices. Members noted that if the pass-through were to expand, there could be an upside risk to US inflation.
In the euro area, growth now appeared stronger than anticipated in the October Report. The strength came largely from a boost in demand for services. Going forward, a surge in Chinese exports to the region could compete with local manufacturing and weigh on growth but increases in defence spending could offset these pressures.
Growth in China was weighed down by weakness in household spending and business investment. Exports were supporting growth, and business investment was expected to show some improvement.
Members briefly discussed global financial conditions, oil prices and the Canadian dollar. These were all roughly the same as they were at the time of the October Report.
Canadian economy and inflation outlook
Members then turned their attention to recent economic developments in Canada. Since the October Report, Statistics Canada published data on gross domestic product (GDP) for the third quarter and revised national accounts data for prior years.
Upward revisions to GDP for the three years ending in 2024 meant that the economy began 2025 on more solid footing than previously thought. Demand was more robust leading up to the US trade conflict. Stronger investment and some improvement in productivity growth also increased the economy’s productive capacity. Members agreed that this may explain some of the resilience in Canada’s economy in the face of the trade shock.
After declining by 1.8% in the second quarter, GDP grew by 2.6% in the third quarter, which was stronger than expected. Members noted that the strength in third quarter GDP was primarily driven by a large decline in imports. Additionally, the slowdown in inventory accumulation was less pronounced than expected and therefore less of a drag on growth. After a sharp contraction in the second quarter, exports were up but only modestly. Final domestic demand was flat, with declines in business investment and consumption. Members acknowledged that uncertainty and volatility in the data made it more difficult to get a clear signal about the strength of the economy. Given the absence of US trade data, members noted there could be more and larger revisions than usual going forward. They expected fourth-quarter GDP to be soft, with increases in consumption, housing activity and government spending offsetting weakness in business investment and net exports.
Members were encouraged by the job gains reported in the Labour Force Survey for November. Three months of solid employment growth had pushed the unemployment rate down to 6.5%. While this was a sign the labour market was improving, a broader set of indicators showed a mixed picture. After large job losses over the summer, employment in the sectors most exposed to trade had stabilized at a lower level than before the trade conflict. Other sectors, particularly services, had boosted overall employment in recent months. Governing Council members noted that much of the hiring over the past three months was in part-time jobs. They also noted that vacancies were low and that surveys of businesses indicated that hiring intentions were subdued.
CPI inflation eased to 2.2% in October, in line with expectations. With only one month of data since their last decision, members saw little change in inflation dynamics. Measures of core inflation were between 2½% and 3%, and the three-month measures generally remained slightly below the 12-month measures. Members agreed that underlying inflation continued to be around 2½%.
Members noted that, in the next few months, CPI inflation is likely to rise slightly. Year-over-year CPI inflation rates of some goods and services components would be higher because the prices had temporarily dropped during the GST/HST 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 2% target. Core measures of inflation were expected to ease gradually in the coming months.
Considerations for monetary policy
Governing Council members discussed key risks to their outlook, namely the evolution of trade policy and uncertainty about how the economy would respond to structural change.
On trade policy, members agreed that the upcoming review of the Canada-United States-Mexico Agreement (CUSMA) was a significant risk. The uncertainty leading up to and during negotiations would likely weigh on business investment. Members shared that business leaders they had met across the country saw the future of CUSMA as a significant strategic risk to their businesses. A worst-case scenario involving the dissolution of CUSMA and higher tariffs would be very damaging to the Canadian economy. Alternatively, a resolution of CUSMA negotiations that provided some stability in North American trade policy could spur on business investment.
Members also considered how the economy would respond to structural changes stemming from the reconfiguration of global trade. The magnitude, speed and impact of these changes across regions and sectors of the Canadian economy was a source of considerable uncertainty. Moreover, the volatility in recent quarterly GDP readings was an indication of how challenging it will be to assess the underlying trends in the economy.
Members acknowledged that fiscal and industrial policy measures were the appropriate tools to address this structural transition given that monetary policy cannot restore lost supply. Governments were providing support to sectors affected by tariffs and trade disruptions. The federal budget included measures aimed at increasing public and private investment, but members agreed it will take some time for the impact of these measures to be fully realized.
GDP data for the third quarter and the revisions to previous years’ national accounts data suggest there is likely somewhat less economic slack than previously assessed. But particularly with GDP expected to be weak in the fourth quarter, members agreed that the economy remained in excess supply. While there was still a risk that higher costs stemming from the reconfiguration of trade could spill over into consumer prices, the effects had been limited so far. Slower growth in unit labour costs may partly explain why these effects have been limited. And subdued demand meant firms would be less likely to pass on cost increases to their customers. 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 2% target.
In sum, members agreed the Canadian economy was showing signs of resilience after a year of trade upheaval, but uncertainty remained high. They would remain cautious in interpreting incoming data given recent volatility and would be prepared to react if their outlook changed materially.
Policy decision
Taking all these developments into consideration, Governing Council assessed the stance of monetary policy.
After cutting the policy interest rate in October—for a total of 100 basis points since the beginning of the year—Governing Council had indicated that if inflation and economic activity were to evolve largely in line with the October projection, the policy interest rate would be at about the right level to keep inflation close to the 2% target.
Since then, members judged that the information they had seen was broadly consistent with their outlook. In this context, Governing Council decided to maintain the policy interest rate at 2.25%.
Members agreed that a policy rate at the lower end of the Bank’s estimate of the neutral range was appropriate to provide some support for the economy as it works through this structural transition while keeping inflationary pressures contained.
Governing Council members also discussed whether it was more likely that their next move would be to raise or lower the policy interest rate. 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.
Finally, Governing Council members exchanged perspectives on what it would take for their views on the stance of monetary policy to change. They agreed that uncertainty remained elevated and that they would assess incoming data relative to the Bank’s outlook. If a significant new shock were to materialize, or an accumulation of evidence indicated that the evolution of economic activity and inflation was materially different from what they expected, Governing Council was prepared to respond.