BOC: Downplaying Recent Data Upside Suggests Lack Of Impetus To Move On Rates

As largely expected the BOC produced a fairly neutral appraisal of the economy and rate outlook, alongside with the unanimously-expected overnight rate hold at 2.25%. The market reaction is slightly dovish (about 2-3bp of implied hiking taken out of the path over the next 7 meetings), reflecting the Statement's downplaying of recent upside surprises in macro data developments. 

• There is no change to October's guidance that "Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment." However the statement inserts "Uncertainty remains elevated." before repeating "If the outlook changes, we are prepared to respond."
• That continued "uncertainty" over the outlook keeps the BOC reluctant to make too much of the recent strength in Canadian macro data. Gov Macklem's opening press conference statement notes "While information since the last decision has affected the near-term dynamics of GDP growth, it has not changed our view that GDP will expand at a moderate pace in 2026 and inflation will remain close to target. Governing Council therefore decided to hold the policy rate unchanged. Additionally he notes that it would take "a new shock" or "an accumulation of evidence" to "materially change the outlook".
• His comments and the rate statement:
  • 1) downplay the upside surprise in GDP growth in Q3 as largely trade-volatility related, eyeing "likely" weak Q4 growth and "high" uncertainty over 2026 GDP.
  • 2) Underplay the large job gains of the last 3 months and the sharp drop in the unemployment rate as "some signs of improvement" in the labour market, suggesting the BOC is not seeing the improvement the last three months as particularly material. The statements go on to note that trade-sensitive sector labour dynamics remain weak and economy-wide hiring intentions are stilled "subdued"; and
  • 3) Make no real change to the inflation outlook, noting that headline CPI slowed in October while reiterating that underlying inflation remains around 2.5% - and seeing inflation remaining close to the 2% target as "ongoing economic slack to roughly offset cost pressures associated with the reconfiguration of trade". Macklem's opening press conference statement noted that "inflation pressures continue to be contained".
• None of that should be a surprise but by the same measure no sign they are thinking about shifting gears based on the recent data surprises.