Interest rate inrease for the last time?
On Tuesday July 11, Bank of Canada is expected to decide on whether to increase the rate one more time. This is going to be a difficult decision this time. xml:namespace prefix =" o" ns =" "urn:schemas-microsoft-com:office:office"" />
On one hand:
1. Export and manufacturing is soft, due to strong Canadian Dollar.
2. Growth has slowed down as supported by only 0.1% gain in March and April.
On the other hand:
1. Employment is extremely strong. The rate of unemployment went down to 6.1% in May from 6.4% in April. More important, the rate stayed low in June at 6.1%. Adding to that is the evidence of labour shortage in the economy.
2. Consumer priced index ( the measure of inflation) jumped by 0.5% in May as a result the year over year rate of core inflation increase to 2%. Bank of Canada was expecting this No. to be 2% by the end of 2006 and not the middle of the year.
So, what is the bank going to do? The last time the bank raised the overnight rate, it clearly said this will be the last raise unless the data strongly supports another rate hike. All in all, this is going to be a close call. If we have to bet on it, we bet on one more hike.