Canadian Interest Rates Started To Rise At This Rate of Unemployment Last Cycle: BMO

Still think the Canadian economy isn’t ready for a rate hike? A new analysis from BMO helps to make a convincing argument otherwise. The Bank of Canada (BoC) last hiked the overnight rate when unemployment fell to the current rate. That was back in 2017, when the country’s interest rates were also double the current level. Combine this with elevated inflation, and it’s a strong argument rates will rise soon.

Canadian Unemployment Was At This Level Last Time Rates Climbed

As mentioned last week, Canadian employment improved last month. The seasonally adjusted unemployment rate fell to 6.7% in October, down 0.2 points from a month before. This is now a 20 month low and within spitting distance of February 2020 data, before the pandemic. The last time it was at this level, the overnight rate was 7x the current rate.

Unemployment Was At A Similar Level Last Time Interest Rates Climbed

Last cycle, interest rates climbed when the unemployment rate fell near this level. “Note that, in the previous cycle, the jobless rate came down to the mid-to-high-6% range in early 2017, writes BMO economist Shelly Kaushik. “And, the BoC started hiking rates soon after-starting in July of that year, to be exact.” 

Canadian Interest Rates Started Much Higher

During the last business cycle interest rates were raised with much less stimulus. “… the central bank was working with a higher starting point then-the target for the overnight rate was at 0.5% at the time, compared to its current 0.25%, she said. The bank has forecast the first rate hike will start in mid-2022, right around that time.

Inflation is much higher, unemployment is at a similar level, and real GDP has nearly recovered. Yet they’ve only just ended quantitative ease (QE) and the overnight rate is a full rate hike lower. Good thing they would never milk a crisis for cheap economic growth, because that’s what it looks like.

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  • david 1 year ago

    They are not raising rates because they don’t want to pop the real estate bubble. They don’t want to put the government in a bad situation either.

    This has nothing to do with macro economy anymore.

    • RW 1 year ago

      That’s not how rates work. The market sets the rate, the central bank can dilute the money people have through inflation by trying to suppress them.

  • vim 1 year ago

    As the commercial real estate industry ” adopts technology ever more quickly, paying attention to cybersecurity is more important than ever. Clients are concerned about the potential for data theft and fraud and expect everyone in the sector to do as much as they can to protect against wrongdoing.”

    Why is it always the crooks who are the most paranoid about security?
    (rhetorical)

  • Roger Brugess 1 year ago

    Looking forward to receiving the postings.

  • questions guy 1 year ago

    This message must be screamed from the rooftops across Canada… get rates out of the ditch ASAP

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