Economists now expect the Bank of Canada to raise its benchmark interest rate on January 17th following a better-than-expected December jobs report that dropped the country’s unemployment rate to 5.7%, its lowest level since 1976.
“I think there’s a rate hike in January,” wrote Stefan Marion of National Bank in a note to clients over the weekend. “You’re either data-dependant or you’re not. If you’re data-dependant and the data is as strong as it is right now, so all in all my view is that there is a rate hike in January.”
Sal Guatieri, Senior Economist at BMO Capital Markets, who had previously predicted the next interest rate hike would be on March 7, said: “(This) could shift the dial on the Bank of Canada decision at the next policy meeting… I’m not sure whether we’ll change our view at this point … but the jobs number has shifted the odds much higher.”
The Bank of Canada raised its key interest rates last July and September after sitting on the sidelines for seven years. Analysts have repeatedly said that they expect further rate hikes this year after improvements in the labour market and inflation. While Bank of Canada Governor Stephen Poloz and his deputies have struck a cautious tone on further interest rate hikes, saying they want to see how the previous rate increases are absorbed by consumers, the December jobs report showed that the Canadian economy is now firing on all cylinders.
Statistics Canada reported last Friday that 78,600 new jobs were created in December, smashing analysts’ expectations of a modest 1,000 jobs gain for the month. The jobless rate dropped to 5.7%, the lowest level since data on jobs started being kept back in 1976. Part-time employment in December jumped by 54,900 jobs while 23,700 full-time positions were added. On a year-over-year basis, employment increased by 422,500, or 2.3 per cent, the most since November 2007.
“The central bank is likely to lift rates this quarter. January should be viewed as a live meeting,” wrote Andrew Kelvin, Senior Rates Strategist at TD Securities, in a note late Friday.
