The Bank of Canada left its policy settings unchanged this morning, while also adopting a somewhat surprisingly-optimistic view on the Canadian economy amid an intensifying trade conflict with the United States.

Officials led by Governor Tiff Macklem maintained the policy rate at 2.25% for a seventh consecutive meeting after delivering nine cuts between June 2024 and September 2025.

In the official statement setting out the decision, policymakers noted “demand for labour remains subdued and indicators point to continued excess supply in the economy” and warned that high uncertainty and “new US tariffs and threats of further action” could derail any Canadian recovery. But officials also acknowledged signs of strength, highlighting a recent “broad-based” pickup in activity, with consumer spending, housing activity, exports, and business investment growing more quickly.

Inflation risks remained front-and-centre: although there is “little evidence” of higher energy prices spreading into other inflation measures, officials warned that “the longer that high oil prices and elevated refinery margins persist, the greater the risk of spillover to the prices of other goods and services”. “New US tariffs and Canadian counter-tariffs”, they added, might “raise costs for some businesses and could feed into consumer prices over time”.

In remarks released ahead of the post-decision press conference, Governor Tiff Macklem said “upside risks to inflation have increased, while new tariffs make growth prospects more uncertain,” suggesting officials view inflation as a greater threat to the central bank’s price stability mandate than trade disruption, making it inappropriate to consider easing policy at this juncture.

The Canadian dollar is advancing incrementally against the greenback, lifted by a slight strengthening in bets on a rate hike by the early new year. Market perspectives could evolve when Macklem and Deputy Governor Rogers answer questions during the post-decision press conference, but for now, there’s little to suggest the two will go as far as foreshadowing a move out of neutral.

Although some appreciation seems reasonable, we still think markets have room to pull back a little further on pricing monetary tightening, and think the Canadian dollar could yet see another modest bout of weakness before a renewed decline in the trade-weighted US dollar contributes to a more constructive tone heading into year end.