On Wednesday, 18 January 2017, the Bank of Canada will be announcing their overnight target rate decision and release the quarterly MPR (Monetary Policy Report). Two key factors will influence the Bank’s decision, the employment gains seen in the fourth quarter of 2016, and the uncertainty associated with the new U.S administration.
Although reports has indicated rising employment throughout the year, a significant percentage of these gains were in the part-time category as full time employment saw lackluster growth. However, in December, 81,300 full time positions were added from the previous month, the largest gain since early 2012. The total employment gain was 53,700 which was higher than the growth most analysts had forecasted. Employment growth is especially important as household debt in Canada is at a record high. Increases to mortgage rates, and high debt fueled consumption may pose further risk to households.
The incoming Trump administration has recently signaled that efforts to impose border tariffs will not be limited to Mexico, which could have wide ranging effects on the export sector, notably the Canadian automotive industry. Automotive assembly in Canada has a long history of collaboration with the U.S and potential measures to deter auto manufacturers from Canada is a downside risk the Bank is considering. All of this contributes to the Bank considering all options, including the potential for a rate cut. Although the Canadian economy is improving as investment and employment rises, potential trade relation problems with the U.S may hinder future growth.
In the upcoming rate decision this Wednesday, we are unlikely to see changes to the overnight rate as the back-and-forth nature of various factors in the economy continue to be at play. Canada’s economy is improving and many analysts believe that an interest rate hike is likely by the end of 2017 or early in 2018.
Interested in watching the press conference? Stephen S. Poloz, Governor of the Bank of Canada will be holding a press conference at 11:15 (Eastern Time) and a webcast will be available on the Bank of Canada’s website here. The Monetary Policy Report will also be available on the Bank’s website at 10:00 (Eastern Time).