First National Financial LP

Residential Mortgage Commentary - Interest rate watch

  • First National Financial LP

While market watchers continue to scan the horizon looking for rate cuts by the Bank of Canada, the Bank is keeping an eye on a couple of other things.

The latest employment numbers from Statistics Canada show the economy unexpectedly added 90,000 jobs in April.  Forecasts had called for about 20,000.  The numbers seem to run against the Bank of Canada’s projections for a slowing economy but there are some mitigating factors:

  • Unemployment remains at 6.1% because population growth continues to outpace job growth.
  • Most of the new positions are part-time.
  • The rate at which wages are increasing is slowing.

That last point is a key consideration in the central bank’s interest rate discussions.

Inflation and interest rates in the United States are also drawing the Bank of Canada’s attention.

Last week the U.S. Federal Reserve held its trendsetting rate steady in the 5.25% to 5.50% range, where it has been since July.  U.S. inflation is 3.5%.  The next U.S. inflation reading will be delivered this week.

The Fed is, now, not expected to cut rates until November.  The BoC is expected to start cutting in June or July.  If the Bank cuts too aggressively it could devalue the Canadian dollar, making imported goods more expensive and, perhaps, sustaining inflation above the 2.0% target.