{"id":177728,"date":"2025-12-10T19:31:08","date_gmt":"2025-12-10T19:31:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/177728\/"},"modified":"2025-12-10T19:31:08","modified_gmt":"2025-12-10T19:31:08","slug":"economists-react-to-boc-rate-hold","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/177728\/","title":{"rendered":"Economists react to BoC rate hold"},"content":{"rendered":"

Canada\u2019s job market has been far stronger than expected, but with the trade challenges ahead, the Bank of Canada\u2019s decision to hold interest rates is a balanced call, economists say. <\/p>\n

The central bank held its key rate at 2.25<\/a> per cent on Wednesday. <\/p>\n

Governor Tiff Macklem said the policy is at the right level for keeping inflation near two per cent and helping the economy adjust to changes, which he calls a \u201cstructural adjustment\u201d.<\/p>\n

\u201cI think what they\u2019re saying as well is that, look, we\u2019re still watching inflation here, and underlying inflation, to be frank, in the last couple of months, hasn\u2019t exactly gone the way they would want,\u201d Warren Lovely, managing director with National Bank Financial, told BNN Bloomberg.<\/p>\n

He said three straight reports of \u201cexceptional\u201d job gains have surprised the central bank and Gross Domestic Product (GDP) data has also been stronger but inflation remains sticky.<\/p>\n

\u201cCan\u2019t really declare victory fully when you still have inflation at the upper end of your target band,\u201d said Lovely. <\/p>\n

He said the Canada-United States-Mexico Agreement (CUSMA) plays a vital role in future decisions. <\/p>\n

\u201cThat, more than anything, is the most significant risk factor for us to be thinking about as we move into 2026,\u201d said Lovely. <\/p>\n

\u201cSure, those job reports that I mentioned have been very, very strong, but companies aren\u2019t exactly telling us there\u2019s a lot of urgency to add new hires.\u201d<\/p>\n

Job optimism is overhyped<\/p>\n

The bank is also trying to push back against \u201cexcitable interpretations\u201d of the recent jobs data<\/a>, Andrew Kelvin, head of Canadian and global rates strategy at TD Securities told BNN Bloomberg.<\/p>\n

He pointed out that after the last report, some investors were already talking about rate hikes in 2026. <\/p>\n

\u201cI think what the bank was trying to do while signaling that the economy does remain resilient\u2014perhaps a little bit better than expected\u2014there are challenges ahead with the CUSMA renegotiation next year,” said Kelvin.<\/p>\n

He said the optimism around the job numbers was likely overdone because Canadian labour data is \u201cnotoriously volatile.\u201d <\/p>\n

Kelvin also pointed out that while GDP in the third quarter came in around 2.6 per cent annualized, consumption activity was still soft, and the unemployment rate at 6.5 per cent is higher than the bank would like.<\/p>\n

Weak investment is still Canada\u2019s biggest problem<\/p>\n

Kelvin said weak business investment is a long-standing issue holding back productivity. <\/p>\n

He said investment outside the energy sector has been low for decades and the manufacturing sector has seen limited growth regardless of whether the currency was strong or weak.<\/p>\n

Lovely said that even though job gains look strong, companies are not acting like they want to hire aggressively or spend more. <\/p>\n

And businesses have held back. <\/p>\n

\u201cThey\u2019re still on the sidelines. And the Bank of Canada has made it clear in the past, we have a productivity crisis, problem dilemma in this country. Fixing it will require businesses to be investing in machinery and equipment, and that\u2019s going to take a lot of time,\u201d said Lovely. <\/p>\n

Kelvin also highlights Canada\u2019s major housing crisis. <\/p>\n

\u201cWe haven\u2019t done a good enough job at building housing. We haven\u2019t done a good enough job promoting business investment,\u201d said Kelvin adding that just looking at those two things alone, one can conclude that Canada is not a friendly environment for investing. <\/p>\n

Macklem has said the CUSMA trade deal review creates uncertainty for businesses.<\/p>\n

While the federal government plans to spend billions of dollars in heavy infrastructure and defence, Macklem said the impact on government spending plans will slowly filter through the economy.<\/p>\n

\u201cI think the task of governments in the future\u2026should be to try and make it a bit more of an attractive place to invest,\u201d said Kelvin. <\/p>\n

Why the dollar slipped after the announcement\"\"Canadian dollar dropped <\/p>\n

The Canadian dollar slipped by approximately 0.13 per cent against the U.S. dollar immediately after the Bank of Canada announced its decision to hold its interest rate. <\/p>\n

Kelvin said the currency dipped because some investors had been positioned for the idea that the bank might need to raise rates sooner than expected. <\/p>\n

Because markets are sort of an opinion weighting machine, he said some individuals would position themselves for news more quickly. <\/p>\n

\u201cThose individuals would have found themselves disappointed by the fact that the Bank of Canada is not panicking after one or two months of very strong data,\u201d said Kelvin. <\/p>\n","protected":false},"excerpt":{"rendered":"Canada\u2019s job market has been far stronger than expected, but with the trade challenges ahead, the Bank of…\n","protected":false},"author":2,"featured_media":177729,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-177728","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/177728","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=177728"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/177728\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/177729"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=177728"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=177728"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=177728"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}