First National Financial LP

Residential Market Commentary - “Belabouring” interest rate increases

  • First National Financial LP

November’s astounding job numbers are fueling more speculation that the Bank of Canada will be raising its benchmark interest rate sooner, rather than later.

Statistics Canada’s latest employment report shows that the economy added nearly 154,000 jobs in November, more than four times what had been forecast.  It is the sixth consecutive month for job growth in Canada.  The unemployment rate fell to 6.0%, from 6.7% and is just slightly higher than it was pre-COVID.

Analysts are saying the labour market improvement could mean the need for economic stimulus has been reduced, which clears the way for the BoC to move ahead with rate increases. 

“Given tighter labour market conditions, stronger price pressures, and hot housing market activity, we can't discount the possibility the Bank may choose to hike as early as January,” says one group of bank economists in their report on the job numbers.

They expect the Bank to sound more “hawkish” on rate hikes.  But the central bank has said it does not expect to move on rates until sometime in the “middle quarters” of next year.  Many market watchers take that to mean April of 2022.  They are forecasting five, quarter-point increases through next year, which would bring the Bank’s trend-setting rate to 1.25%.  It is currently at .25%. 

The wildcard though – as it has been for nearly two years – is COVID. The effects of the new omicron variant have yet to be seen but, right now, it is creating a lot of uncertainty.