Below is the comparison of the October rates decision to the December rate decision:

The Bank of Canada today reduced
its target for the overnight rate by 25 basis points
to 2.25%, with the Bank Rate at 2.5%
and the deposit rate at 2.20%.

With the effects of US trade actions on economic
growth and inflation somewhat clearer, the Bank has returned to its usual
practice of providing a projection for the global and Canadian
economies in this Monetary Policy Report (MPR).
Because US trade policy remains unpredictable and uncertainty
is still higher than normal, this projection is subject to a
wider-than-usual range of risks.

While the global economy has been resilient to the
historic rise in US tariffs, the impact is becoming more evident. Trade
relationships are being reconfigured and ongoing trade tensions are dampening
investment in many countries.
In the MPR projection, the global economy slows from about
3¼% in 2025 to about 3% in 2026 and 2027.

In the United States, economic activity
has been strong, supported
by the boom in AI investment. At the same time,
employment growth has slowed and tariffs have started to push up consumer
prices. Growth in the euro area is decelerating due to weaker exports and
slowing domestic demand. In China, lower exports to the United States have been
offset by higher exports to other countries, but business investment has
weakened. Global
financial conditions have eased further since July and
oil prices have been fairly stable. The Canadian dollar has depreciated
slightly against the US dollar.

Canada’s economy contracted by 1.6% in the second
quarter, reflecting a drop in exports and weak business investment amid
heightened uncertainty. Meanwhile, household spending grew at a healthy pace.
US trade actions and related uncertainty are having severe effects on targeted
sectors including autos, steel, aluminum, and lumber. As a result, GDP growth
is expected to be weak in the second half of the year. Growth will get some
support from rising consumer and government spending and residential investment,
and then pick up gradually as exports and business investment begin to recover.

Canada’s labour market remains soft. Employment gains
in September followed two months of sizeable
losses. Job losses continue to build
in trade-sensitive sectors and hiring has been weak
across the economy. The unemployment rate remained at 7.1% in September and
wage growth has slowed. Slower population growth means fewer new jobs are
needed to keep
the employment rate steady.

The Bank projects GDP will grow by 1.2% in 2025,
1.1% in 2026 and 1.6% in 2027. On a quarterly basis, growth strengthens in 2026
after a weak second half of this year. Excess capacity in the economy is
expected to persist and be taken up gradually.

CPI inflation was 2.4% in September, slightly higher than the Bank had
anticipated. Inflation excluding taxes was 2.9%. The Bank’s preferred measures
of core inflation have been sticky
around 3%. Expanding the range of indicators to include alternative measures
of core inflation and the distribution of price changes among CPI
components suggests underlying inflation remains around 2½%. The Bank expects
inflationary pressures to ease in the months ahead and CPI inflation to remain near 2%
over the projection horizon.

With ongoing weakness in the economy and inflation expected
to remain close to the 2% target, Governing
Council decided to cut the policy rate by 25 basis points.

If inflation and economic activity evolve broadly in line
with the October projection, 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. If the outlook changes, we are prepared to
respond. Governing Council will be assessing incoming data
carefully relative to the Bank’s forecast.

The Canadian economy faces a difficult transition.
The structural damage caused by the trade conflict reduces the capacity of the
economy and adds costs. This limits the role that monetary policy can play to
boost demand while maintaining low inflation. The Bank is focused
on ensuring that Canadians continue to have confidence in price stability
through this period of global upheaval.