By Promit Mukherjee
OTTAWA, Dec 10 (Reuters) – The Bank of Canada is almost certain to hold its interest rate at 2.25% on Wednesday after signaling in October that its key policy rate was at the right level and following a slew of upbeat data on economic growth, inflation and the job market.
Despite grueling U.S. tariffs on some critical sectors such as steel, cars and lumber, Canada’s economy has shown surprising resilience, and prices on average have not spiked as previously expected.
In the third quarter, Canada not only managed to avoid a recession but its economy grew by 2.6%, two percentage points more than the BoC’s projection in October. Inflation as measured by the consumer price index, while showing some underlying pressure from food and shelter, eased to 2.2% in October.
The biggest surprise, however, sprang out of the job market where data showed the unemployment rate in November fell to a 16-month low of 6.5%, with the economy adding 181,000 jobs in the three months from September to November.
“There wasn’t much debate on that matter (no rate cut) heading into this week, but the strong jobs data makes the bank’s decision very easy,” said Doug Porter, chief economist with BMO Capital Markets.
Porter said looking into the next year, there is now chatter that there could be a rate hike in the latter part of the year, especially due to underlying inflationary pressures.
The bank’s preferred measures of core inflation, which strip out volatile price components, have continued to hover around 3%, or the top end of the BoC’s inflation target range of 1-3%.
A Reuters poll of 33 economists showed that all of them expect the bank to stand pat on rates on December 10, with 18 of 29 who commented on the trajectory of monetary policy predicting the BoC will hold rates steady at least until 2027.
Money market expectations for a hold on Wednesday are in line with economists’ expectations but their bets are inclined towards a rate hike in the fourth quarter of next year.
While the bank’s decision will not accompany a monetary policy report, economists will be keenly watching Governor Tiff Macklem’s commentary on core inflation and how he sees GDP evolving next year on the back of recent data surprises.
The U.S. Federal Reserve will also announce its rate decision on Wednesday and is expected to cut rates by 25 basis points, its third and final cut for the year.
(Reporting by Promit Mukherjee; Editing by Andrea Ricci)
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