Canada May Become Second Nation To Increase Interest Rates

With signs beginning to point clearly towards recovery for the Canadian economy, there is growing speculation that the nation’s central bank will increase interest rates. Gains posted in …

With signs beginning to point clearly towards recovery for the Canadian economy, there is growing speculation that the nation’s central bank will increase interest rates. Gains posted in employment and wages, led by recovering manufacturing and building sectors, could cause Canada to follow Australia’s lead in raising their key interest rates. For more on this, see the following article from Money Morning.

While the U.S. economy is still shackled by unemployment and struggling to emerge from its worst recession in 70 years, Canada is already emerging from the economic downturn.

Employment in Canada rose for the second consecutive month in September, as 30,600 workers found jobs. The unemployment rate fell to 8.4% from 8.7% in August.

The manufacturing and construction sectors, benefiting from a rise in home prices and government stimulus, were out in front of the surge. Manufacturing firms added 26,100 jobs, while 24,600 workers found jobs with construction companies. Eight of the 16 industries tracked by Statistics Canada logged job gains.

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Wages rose, as well, with hourly pay for Canadians jumping 2.5% in September from a year earlier.

After a 0.1% increase in June, Canada’s gross domestic product (GDP) was flat in July, Statistics Canada said. With unemployment falling sharply in both August and September there’s a good possibility that the nation’s third-quarter economic growth was sharply positive.

That means the Central Bank of Canada (BOC) could be the next central back to raise its key borrowing rate – currently at 0.25% – following Australia.

The impressive employment figures “will certainly lead the Bank of Canada to focus on the timing of future interest-rate increases set out in its conditional commitment to hold interest rates at the current level until the second quarter of 2010,” Millan Mulraine, economics strategist at TD Securities Inc. told The Vancouver Sun.

The Reserve Bank of Australia on Tuesday unexpectedly raised interest rates 0.25% to 3.25%, making it the first Group of 20 (G-20) nation to raise borrowing costs since the start of the biggest economic meltdown in 70 years.

“Nonetheless, while for now we continue to expect the policy rate to remain unchanged until the fourth quarter of 2010, we think that the risks of an earlier move have increased dramatically,” he added.

This article has been republished from Money Morning. You can also view this article at
Money Morning, an investment news and analysis site.

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