Bank of Canada seen raising rates in second quarter of 2015: Reuters poll

Thu Nov 28, 2013 12:43pm EST
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By Deepti Govind and Louise Egan

OTTAWA (Reuters) - The Bank of Canada is seen keeping interest rates on hold until well into 2015 as it waits for more signs of life from the U.S. economy and grapples with two big worries at home - low inflation and a hot housing market, a Reuters poll showed.

The median forecast in a Reuters poll of 32 economists published on Thursday was for the central bank to begin hiking rates from the current 1 percent level in the second quarter of 2015.

That is six months later than predicted in a poll last month, before central bank chief Stephen Poloz surprised markets by adopting a more dovish stance after 18 months of signaling rate hikes to come.

The day after that October 23 policy shift, Canada's 12 primary securities dealers likewise changed their forecasts to show a rate hike in the second quarter of 2015.

The central bank's next move hinges largely on events beyond Canada's borders, with the big question being whether the U.S. recovery will accelerate as hoped next year, economists said.

Domestically, the bank is forced to stand pat due to uncomfortably low inflation on the one hand and excessive levels of household debt on the other, linked to a housing boom. If it cuts rates to address the former, it risks stoking a credit bubble that could bring bigger problems down the road.

"They've got two worries and they balance each other out," said David Watt, chief economist at HSBC Bank Canada, adding strong auto sales to the equation, alongside housing.

"I won't say that they are hamstrung but I think that they're comfortable sitting on the sidelines at the present time ... their focus is going to remain on eventual rate hikes." he said. "It's just that when that occurs is further down the road than they might have thought several months ago."   Continued...

Bank of Canada Governor Stephen Poloz takes part in a news conference upon the release of the Monetary Policy Report in Ottawa October 23, 2013. REUTERS/Chris Wattie