The latest employment numbers have more forecasters calling for a 50 basis-point (0.50%) cut in the Bank of Canada’s benchmark Policy Rate on December 11. It will be the Bank’s final rate setting for this year.
The November unemployment rate rose to 6.8%, up from 6.5% in October, despite the addition of 51,000 new jobs. The increase in the jobless rate is the result of more people actively looking for work. The, so called, participation rate has been pushed up by high levels of immigration.
High interest rates that were designed to combat inflation have led to a slowdown in hiring. Now that inflation is back inside the BoC’s target range the Bank has been cutting rates in an effort to keep the economy moving. Back in October the Bank tried to accelerate that process with a 50 basis-point rate cut. Prior to that the Bank had been trimming its Policy Rate in 25 basis-point increments.
The central bank is also closely monitoring Gross Domestic Product. GDP continues to grow, but not as quickly as the Bank has forecast. It increased just 1.0% in the third quarter. Expectations had been for a 1.5% increase. Fourth quarter numbers could also be disappointing due to the nation-wide postal strike.
Another factor that will likely be part of the Bank’s calculations is the value of the Canadian dollar. The Loonie is currently valued at about 70 cents U.S., which is a 4 and-a-half year low. The Bank may be reluctant to see our dollar dip even further, which is a common reaction when Canada’s interest rates fall below those in the U.S.