Bank of Canada considered waiting longer to cut interest rate, deliberations show

Tiff Macklem, governor of the Bank of Canada, and Carolyn Rogers, senior deputy governor, hold a press conference in Ottawa after the rate decision on Oct. 29. Photo by THE CANADIAN PRESS/Sean Kilpatrick

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The Bank of Canada’s decision to cut the key overnight interest rate by 25 basis points to 2.25 per cent last month was driven by a soft labour market, tepid growth expectations, and a clearer idea of the impact of the trade war initiated by the United States.

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The central bank’s governing council determined that the rate cut could help support the economy through the structural change prompted by the trade upheaval, so long as inflation remains in check. However, there were differences of opinion about the timing of the cut, according to a statement of deliberations released Wednesday.

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There was some discussion about holding rates steady until a future meeting, allowing central bankers to gain more information about the extent of weakness in the labour market, federal fiscal policy, and trade deliberations. But with inflation projected to stay close to the target of two per cent, the arguments for cutting the policy rate in October were considered more salient.

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Nevertheless, the Bank of Canada signalled that it could change course if things don’t play out as expected, given the uncertainty and risks to the economy from factors including volatile trade talks and the impact of ongoing tariffs. 

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“Members wanted to underline that this assessment was contingent on inflation and economic activity evolving broadly in line with the October projection,” the statement of deliberations said.

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“If new information led them to conclude the outlook had changed materially, they were prepared to adjust the policy interest rate.”

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Trade shock, global uncertainty, and spillovers into the rest of the economy from heavily impacted sectors such as steel and automotive, were all contributing to economic weakness in Canada, the central bankers concluded.

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“Even though growth was expected to gradually recover, the economy would be on a permanently lower path,” the statement of deliberation said, adding that GDP was expected to be “about 1.5 per cent lower at the end of 2026 than had been forecast in January 2025.”

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Inflation, meanwhile, is expected to remain around the target of two per cent, despite some choppiness from factors including a short-term holding on GST/HST tax and the elimination of the consumer carbon tax in April, the central bankers said.

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The Bank of Canada deliberations took place over roughly a week leading up to the policy rate decision, and included  governor Tiff Macklem, senior deputy governor Carolyn Rogers and deputy governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, Rhys Mendes and Michelle Alexopoulos. 

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They discussed whether monetary policy can help Canada adjust to its new trade reality, and concluded that while they don’t have the power to target specific sectors or open new markets, monetary policy can play a role in mitigating the spillovers from hard-hit sectors to the rest of the economy.