First National Financial LP®

Residential Mortgage Commentary - BoC likely to hold the line

  • First National Financial LP

Two key guide posts for the Canadian economy are pointing in the same direction.  Both the third quarter GDP numbers and November jobs figures suggest the Bank of Canada is unlikely to make any changes to its trendsetting interest rate in the coming days.

Canada's economy shrank at an annualized rate of 1.1% through July, August and September.  That was a bigger decline than expected.  Market watchers had been looking for a modest 0.2% increase.  The Bank of Canada had forecast a 0.8% gain.  The country avoided falling into a technical recession though, because the Q2 reading was revised upwards to a 1.4% gain.  It had initially been posted as a 0.2% decline.  Nonetheless the economy has been on a slowing trend for several months.

The economy added more jobs than expected in November, but the unemployment rate went up.  There were nearly 25,000 jobs added, beating the forecast of 15,000.  However, that did not keep up with the country's population growth.  Unemployment rose to 5.8%, from 5.7% in October, because there are more people looking for work.

These are the last two major economic data points before the Bank of Canada makes its December rate announcement this week.  When combined with the latest inflation numbers (up 3.1% y/y in October) the Bank appears to have all the reasons it needs to hold its policy rate at 5.0%.  That rate has not moved since July and the market focus has now shifted away from further increases and toward when there could be cuts.