Bank of Canada holds its ground despite surging economy

Yesterday the Bank of Canada held firm and its very recent change in tone and policy by confirming it would hold its benchmark interest rate to 1%. The Bank increased rates twice in quick succession, once in July, as the housing market was searing hot in some parts of the country, and again in September, after a wide spate of government measures had by then significantly cooled prices and demand.

The Bank offered no hint as to when rates would be raised again and this week’s decision is the final rate decision for 2017.

We will have to wait until next year to wait and see for further hikes. Some market watchers were expecting a hike as strong economic activity, robust GDP growth, and very high employment growth were all recently reported.

The most recent employment numbers are off the charts, with 80,000 new jobs being created in the month of November – market expectation was 10,000 new jobs. Ontario generated the lion’s share of these jobs (44,000).

The national unemployment rate hit a 10-year low because of these gains, falling to 5.9%. in Quebec, unemployment has hit an all-time record. Unemployment should continue to fall as retailers add some more positions for the holiday surge before year end. Hourly wages are also up just under 3% nationally, an unusually big increase.

The best piece of news is that 37,400 manufacturing jobs were created. These are solidly middle-class, high paying, productive positions that Canada has generally underperformed in creating.

Usually, central banks respond to strong figures like these by raising rates in fear of higher inflation from more spending and more borrowing. The Bank of Canada is internationally recognized and renowned as being extremely focused and hawkish on meeting its inflation targets. The broader market expectation is that further rate hikes will be on the table early next year if wage, employment, and GDP growth continue their robust increases.