Bank of Canada's Forward Guidance Is Neutral, Not Hawkish, Says Rosenberg Research

11:02 AM EST, 12/11/2025 (MT Newswires) -- The Bank of Canada held the policy rate steady at 2.25% on Wednesday, as expected, said Rosenberg Research.

The forward guidance was neutral, not hawkish, with the same key language being used as in last month's report, noted Rosenberg Research.

This stands in stark contrast to the more definitively hawkish tone coming out of the Reserve Bank of Australia -- the BoC was much more careful to keep its options open, stated Rosenberg. The BoC didn't ratify the modest tightening expectations that have become embedded in the fixed income market -- although it didn't disqualify them either.

The BoC did tip its hat to the view that the economy and labor market are holding up -- but the biggest threat to the outlook is "uncertainty," which was noted several times in the statement, added Rosenberg. There remain real downside risks.

Canada's central bank was very careful not to over-index to the strong employment report last Friday that saw Canada's unemployment rate fall to 6.5%. The BoC carefully emphasized that despite that report, "job markets in trade-sensitive sectors remain weak and economy-wide hiring intentions continue to be subdued."

Pre-meeting market expectations were for no more cuts and for one hike of 25 basis points by the October 2026 meeting -- and post-meeting, there was little change, it pointed out. A further cut in January 2026 is seen as having about a 3% chance.

The BoC also still sees slack as a key disinflationary pressure, despite the recent jobs report.

Although there were upward revisions to Canada's gross domestic product -- which lowered the output gap -- the BoC is still seeing significant slack in the economy as a whole, which is countering inflationary tariff pressures into 2026. As a consequence, there is very low upside risk to inflation in its view and in Rosenberg's opinion too. Even with unemployment at 6.5%, there is still an output gap as the neutral rate of unemployment being around 5.7%.

The BoC noted that strong Q3 growth was mostly due to trade and that final domestic demand was on a flat trend.

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