Bank of Canada seen hiking rates in fourth quarter of 2014: poll

Thu Aug 29, 2013 2:06pm EDT
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By Louise Egan and Deepti Govind

(Reuters) - The Bank of Canada will likely keep interest rates at their current low level until the fourth quarter of 2014, according to economists in a Reuters poll, even though there are strong signs the U.S. Federal Reserve could soon start scaling back its stimulus measures.

As the Fed signals it will start reducing its $85 billion-a-month bond purchases in coming months and the U.S. and global economies show signs of firming, many analysts expect the Canadian dollar to weaken and foster a long-overdue export recovery.

That means conditions will be ripe just over a year from now to begin the gradual return to normal rates, they said.

"The broad-based U.S. recovery will provide a tail wind to exports and businesses over the medium term, more than compensating for the headwind coming from higher interest rates for borrowers triggered in part by Fed tapering comments," said Sebastien Lavoie, assistant chief economist at Laurentian Bank, who predicts the Bank of Canada will make a move to raise rates in the fourth quarter of 2014.

Charles St-Arnaud of Nomura Securities in New York said the bank will want to see at least two quarters of economic growth of above 2 percent, annualized, and be confident that the trend will continue for the following few quarters before it tightens monetary policy.

"The first opportunity we have for that would be around the end of the third quarter (of 2014)," he said, referring to second-quarter gross domestic product numbers that are typically published in late August.

The median forecast of 35 economists for a fourth-quarter 2014 move represents no change from a similar poll done by Reuters in July.

Forecasters have either maintained or pushed back their forecasts on the timing of rate hikes in every Reuters poll since September 2012.   Continued...

Bank of Canada Governor Stephen Poloz is framed by seats while taking part in a news conference upon the release of the Monetary Policy Report in Ottawa July 17, 2013. REUTERS/Chris Wattie