Bank of Canada Holds Interest Rate Steady Amid Labour Market Growth

The Bank of Canada is expected to keep its benchmark interest rate on hold later this month due to a surprise hiring surge in June. Statistics Canada reported that the unemployment rate dropped to 6.9% in June, with the economy adding 83,000 jobs, mostly part-time positions.

Labour Market Shows Resilience

Despite expectations of a rise in the jobless rate to 7.1% in June, the labour market showed resilience. Katherine Judge, senior economist at CIBC, stated that the details of the report suggest a strong jobs market, despite tariff pressure from the United States. The June figures buck the recent slowdown in the labour market, with the first significant job gain since January.

Impact of Tariffs and Interest Rate Decisions

The Bank of Canada will be closely parsing the labour figures as it prepares for its next interest rate decision on July 30. The central bank has kept its benchmark rate on hold at 2.75% in two consecutive decisions, awaiting more clarity on how trade disruptions will affect the economy. CIBC had expected a return to interest rate cuts later this month but changed its call due to the strong labour market data.

Economist Insights

TD Bank senior economist Leslie Preston noted that one month of job gains doesn’t change the fact that the labour market is cooler than it was a year ago. Preston also highlighted the impact of US President Donald Trump’s threat to impose 35% tariffs on Canadian goods starting August 1. Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, said he expects the Bank of Canada will remain on the sidelines at its next decision, barring a sharp decline in underlying inflation.

Industry Job Growth

The wholesale and retail trade industry led employment growth in June with 34,000 new positions, followed by health care and social assistance with 17,000 jobs added. The manufacturing sector, which has faced job losses in recent months, saw a gain of 10,000 positions in June. However, the agriculture sector faced notable job losses with 6,000 positions shed.

Regional Unemployment Rates

Tariff pressures continue to affect trade-heavy markets like Windsor, Ontario, which has the highest unemployment rate of all census metropolitan areas at 11.2%. Alberta, Manitoba, Ontario, and Quebec all posted job growth in June. The unemployment rate for returning students remained elevated at 17.4% in June.

Conclusion

In conclusion, the Bank of Canada is expected to keep its benchmark interest rate on hold due to the surprise labour market growth in June. While the labour market shows resilience, economists expect the Bank of Canada to remain cautious, considering the impact of tariffs and trade disruptions on the economy. The next interest rate decision on July 30 will be closely watched, with economists awaiting more clarity on the labour market and inflation data.