Bank of Canada rates seen steady till 2015 despite dovish shift

Wed Jan 15, 2014 5:16pm EST
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By Sarbani Haldar and Louise Egan

OTTAWA (Reuters) - The Canadian central bank's next interest-rate move will be a hike rather than a cut and won't happen until the second quarter of 2015, according to a Reuters poll of economists, though some predict the bank might sound more dovish in the interim.

The median forecast in a Reuters poll of 37 economists, released on Wednesday, was for the Bank of Canada to raise its main interest rate by 25 basis points at some point between April and June of next year.

None of the respondents expected a move at the bank's next decision date on January 22, and all but two expect the bank to hold the rate steady at 1.0 percent through 2014.

The poll results were unchanged from a previous Reuters poll on November 28, but the mood among some participants was decidedly more downbeat.

The tone of the bank's statement next Wednesday will be the focus of attention as well as its quarterly monetary policy report, which will be issued at the same time. In the report, the bank will weigh the risks of persistently weak inflation and an underperforming economy against the positive news of a reviving U.S. economy and a weaker Canadian currency, which should help exports.

Most economists think the report will emphasize economic disappointments, though not a single forecaster said a rate cut was in the cards.

"The Bank of Canada is poised to shift the tone and lean further toward a rate cut first, rather than go for an outright cut to start 2014," said Sebastien Lavoie, economist at Laurentian Bank, who forecasts a 50-point rate hike in the second quarter of 2015.

"The recent weaker trend in inflation implies that the (bank's) medium-term 2 percent target is less likely to be reached than before," he said.   Continued...