All but one of Canada’s six biggest commercial lenders now say the central bank will raise interest rates this month after the jobless rate dropped to its lowest in modern records.
Toronto-Dominion Bank, Bank of Nova Scotia, Royal Bank of Canada and the Canadian Imperial Bank of Commerce changed their forecasts after a Statistics Canada report showed the unemployment rate unexpectedly fell to 5.7% in December, from 5.9% the previous month, on the strength of 78,600 new jobs.
“Given the tremendous progress made in narrowing labor market slack – an area highlighted by the Bank of Canada in recent communication – we think that today’s report is enough to push” Governor Stephen Poloz to raise rates on 17 January, CIBC economist Nick Exarhos said in a note to investors.
RBC economist Josh Nye said in a note to investors the jobs figures “further increase the odds that the BoC raises rates at their coming meeting” and confirmed in an interview the bank is also moving up its forecast.
Bank of Montreal remains on the fence. Economist Robert Kavcic said in a research note the Bank of Canada may move this month if a survey of executives the central bank publishes on Monday also shows strength. “We’re going to wait to see what the Business Outlook Survey says,” he added in an interview.
The consensus of economists polled by Bloomberg last month was for an increase in April, with National Bank Financial already calling for a January move in that survey. Poloz increased the central bank’s benchmark overnight rate to 1% at consecutive decisions in July and September, but ended the year stressing that policy makers would be “cautious” with future moves.